The Pensions Regulator (TPR) has issued guidance for pension superfunds in a move which opens the door for a further wave of defined benefit (DB) scheme consolidation.
The long-awaited move could see the first transactions completed within months despite no date having been confirmed for a permanent regulatory regime.
TPR's interim framework sets out expectations for superfunds to prove they are well-governed, run by "fit and proper people" and backed by adequate levels of capital.
With no employer covenant under the superfund model, TPR said capital adequacy is among the most important areas of its interim regime, with superfunds required to hold sufficient assets to meet the promises to savers with "a high degree of certainty".
TPR added that this will include the requirement for the scheme's liabilities - i.e. technical provisions - to be calculated using assumptions that are laid out in TPR's guidance and for additional assets to be held in a capital buffer.
The regulator added that trustees needed to be completely certain a transfer to a superfund was in their members' best interests and should only consider using a superfund once the regulator has completed its assessment. Further guidance for trustees and employers can be expected in the coming months, it added.
- TPR guidance for those setting up and running a DB superfund
- TPR guidance for trustees considering transferring to a DB superfund
- TPR guidance for employers considering transferring to a DB superfund
TPR worked closely with the government and other parties to set its interim expectations on how these new schemes will run, ahead of any specific legislation dealing with superfund.
The government said it is working on the development of a permanent regime before introducing specific superfunds legislation.
Minister for pensions and financial inclusion Guy Opperman said: "Well-run superfunds have the potential to deliver more secure retirement incomes for workers, while allowing employers to concentrate on what they do best - running their business. The publication of today's interim regime is a big step towards a healthier and stronger pensions landscape."
He added: "I look forward to learning from the experiences from the interim regime, which will provide valuable insights as we develop and finalise our plans for a longer-term legislative solution."
TPR chief executive Charles Counsell added: "We have set a high bar to ensure savers can have confidence in superfunds should their pension be transferred into one in the future. Our priority is the protection of savers.
"In line with our clear, quick and tough approach, we are setting out now how our interim regime will assess and regulate superfunds, including new models, so there can be no doubt about the standards we expect before the government's permanent authorisation regime comes into force."
Counsell added that the regulator had taken "bold action" on the long-debated issue of DB consolidation to ensure the market develops in the best interests of savers following the severe impact of the coronavirus pandemic on the UK economy.
"The impact of the Covid-19 crisis may prompt some sponsoring employers and pension trustees to consider what they can do to meet defined benefit pension promises in the future," he added.
As superfunds launch, TPR said it would be prepared to take regulatory action where necessary to protect savers interests.
The regulator also confirmed it will continue to work with the government to keep the operation of the regime under review moving forward.