Government responds to superfunds consultation with permanent regime plan

Pensions minister says work will now begin on the detail required for permanent regime

Jonathan Stapleton
clock • 3 min read
Pensions minister Laura Trott. Image: (CC BY 3.0)

Pensions minister Laura Trott. Image: (CC BY 3.0)

The government has published its response to its consultation on the consolidation of defined benefit (DB) pension schemes in superfunds – saying it would now begin work to develop a permanent legislative regime.

The government consultation, DB Pension Scheme Consolidation, closed at the beginning of February 2019 but the government response to this was only published today (11 July).

Pensions minister Laura Trott said the "vast majority" of the responses to the consultation were supportive of the proposals and "keen to see superfunds up, running and regulated in the UK" - noting work would now begin to finesse the detail required to enable the Department for Work and Pensions to develop and progress the permanent legislative regime.

She explained: "Setting up this system will ensure that superfunds operate on a secure footing and support scheme members so they can confident that their position is being enhanced by this form of consolidation."

The Pensions Regulator (TPR) launched its interim regime for superfunds and other new models in June 2020, ahead of proposed government legislation. In October 2020, TPR then published guidance for trustees and employers considering a transfer to a superfund.

So far, just one superfund, Clara Pensions, has been assessed by the regulator under this interim regime but Trott said she wanted to see the market develop further "and soon".

Trott added: "I hope that reiterating the government's support for superfunds, alongside TPR's interim review, and committing to having a permanent regulated regime, as soon as parliamentary time allows, will help to maintain momentum and investor confidence and cement the legacy of this important innovation."

The consultation response comes the day after chancellor Jeremy Hunt announced his Mansion House Reforms - a package of measures that included a commitment to better manage the UK's 5,000 "fragmented" DB schemes and create a permanent superfund regulatory regime, aimed to help sponsors and trustees better manage liabilities.

Trott said superfunds had the potential to both help employers meet their obligations and also provide access to new sources of capital for UK firms.

She explained: "For sponsors for whom insurance buyout is out of reach, Superfunds have the potential to improve the likelihood of members getting their benefits in full, whilst providing employers with a new, affordable way to manage their legacy pension liabilities.

"Superfunds are also ideally placed with the benefits of scale, significant new capital and a well-diversified portfolio to contribute to greater investment in assets that support the UK as a whole. They align with wider government initiatives designed to stimulate economic growth and will provide access to new sources of capital investment for UK firms, major infrastructure projects, other illiquid type investments, and fresh finance for sustainable technology, areas which up to now have suffered with under investment. "

Welcome boost

Commenting on the chancellor's announcement yesterday and his commitment to create a permanent superfunds regime, TPR said the measures would be a "welcome boost" for innovation.

TPR chief executive Nausicaa Delfas said: "The expansion of collective defined contribution schemes (CDCs) and introduction of a permanent regime for pensions superfunds all represent a welcome boost for innovation in savers' interests."

Broadstone head of policy David Brooks said the chancellor had conjured a "rabbit out of the hat" with his "unexpected" announcement about the creation of a permanent regime for superfunds.

He said: "Government backing for these long-awaited vehicles will certainly be a fillip for smaller DB pension schemes struggling to attract insurers in a congested market.

"While superfunds have long been in the offing, weighty question marks remain over how long these reforms will take to implement and create a competitive environment."

He added: "Many schemes will have recently benefitted from improvements in funding levels through the increase in gilt yields over the past 18 months and a viable alternative to the insurance market will certainly be an attractive option."

Clara Pensions chief executive Simon True was also positive about the government's intention to introduce a permanent superfund regulatory regime.

He said: "Pensions consolidation will deliver increased member security, improved governance, and the ability to access long-term illiquid assets that can drive economic growth.

"Clara is well placed to consolidate pension schemes of all sizes to deliver these goals and we are actively working on our first transactions. We look forward to engaging with government on their plans and to creating improved outcomes for pension scheme members, and the UK economy."

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