WTW: One-in-five schemes considering superfunds

A WTW survey - conducted in June following The Pension Regulator's (TPR) announcement of an interim regime for superfunds - questioned 280 trustees and chief investment officers.

Nearly two-thirds (62%) of survey participants said superfunds were a positive development for scheme members, while a third were yet to make up their minds. A total of 4% said they were not a positive.

While the industry gave a largely optimistic reaction to TPR's guidance, Bank of England governor Andrew Bailey last week questioned whether superfunds would pose a risk to financial stability.

WTW senior director Costas Yiasoumi said the firm still expected transactions to be on the agenda for "an increasing number of schemes" following full authorisation, however.

He added: "Superfunds could present an opportunity for schemes with a ‘burning platform', such as a weak or uncertain covenant, who cannot afford to buyout."

"Those reluctant to jump in too quickly are likely to keep a close eye on progress and would move superfunds on to the table as an option should they become a regular feature of the DB landscape."

The survey also asked respondents to consider various scenarios to assess shifts in schemes' attitudes to superfunds. Over a quarter (26%) said they would accept the offer - barring due diligence - of a final lump sum contribution from a sponsoring employer, subject to the scheme transferring to a superfund.

Yiasoumi continued: "We would expect that if superfunds become a regular feature of the landscape more and more schemes would embrace such an offer from the employer. This suggests superfunds could have considerable scope for growth."

Respondents were also asked how schemes would secure pensions for members if their scheme was 90% funded on a buyout basis but their sponsor became insolvent.

Sixty percent said they would prefer an insurance buyout in the scenario that guaranteed 90% of benefits on average with the security of the insurance regime to insure it was no less. A total of 40% said they would rather transfer to a superfund that would meet benefits in full, on the assumption member would receive lower benefits if the superfund were to then fail at a later date.

Yiasoumi said: "There is clearly an appetite for superfunds and an acceptance that they can have a role to play in delivering good member outcomes for a significant minority of DB schemes. However, it is still early days.

"Time will tell if superfunds become a permanent feature of the landscape or remain niche players for niche circumstances."

 

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• Topics
• Defined Benefit
• Willis Towers Watson
• Bank of England
• TPR
• Costas Yiasoumi
• Andrew Bailey