Jack Sharman: This year has marked a 'turning point' in the market for alternative endgame solutions such as superfunds
At least two firms are at “fairly advanced” stages of planning to enter the superfund market following the introduction of the Pension Schemes Bill and as sponsor interest in the endgame option grows.
Speaking at a breakfast roundtable this morning (18 September), Barnett Waddingham principal and senior consulting actuary Jack Sharman said this year marked a "turning point" in the market for alternative endgame solutions such as superfunds.
Sharman said much of the Pension Schemes Bill, laid before parliament in June, concerned setting up a new, permanent regulatory framework for defined benefit (DB) superfunds – legislation he said showed the government was serious about creating an alternative to the pension insurance market.
Sharman said there was also a "growing interest" in superfunds – with a broader range of schemes and sponsors now looking at the option since it had been proven across schemes in a range of different circumstances by Clara Pensions, the only superfund currently in the market.
Clara Pensions has now completed four deals – including its connected covenant deal with the Church Mission Society announced in June.
Sharman said the combination of the new regulatory framework for superfunds and the growing interest in the endgame option meant there would be new entrants into the market – noting that at least two separate organisations were now at "fairly advanced" stages of planning.
He said an expansion of the superfund market would present opportunities for further innovations when it came to things like surplus sharing with sponsors and members.
Run-on
At the roundtable Barnett Waddingham partner and senior investment consultant Pallavi Aston also spoke about how "the mindset had changed" in terms of whether or not a scheme should buyout, with an increasing number of sponsors now seeing a value in their DB scheme that could be grown and shared.
She said run-on was now an option an increasing number of well-funded larger and medium-sized schemes were now considering.
Pallavi noted it was particularly encouraging that the Pension Schemes Bill was set to give trustees of DB schemes a new statutory power to modify their scheme rules allowing them to refund surpluses to sponsors while the scheme is still ongoing.
She added schemes and sponsors were now in a "completely different" place than they used to be – moving from "survival mode" to embracing what could be quite a strategic opportunity.
Pallavi said: "The game has completely changed in terms of how people are viewing this."
Buying out
But while a growing number of schemes were considering their strategic endgame options, Barnett Waddingham partner and head of bulk annuities Nikhil Patel said the market for insurance remained strong.
He predicted there would be volumes of around £40bn to £45bn this year – adding that, while there had been some slowdown in mega deals this year, there had been a substantial increase in the number of small scheme deals.
Patel said some 300 deals were completed last year and expected this number to increase this year – with the potential for numbers to reach the "a deal a day" level on an annualised basis in the near future.
He also said that insurance innovation and non-price factors were becoming much more important – with bulk purchase annuity providers looking to new ideas particularly in the post-transaction phase, where the conversation had increasingly moved to areas such as member experience, member portals and administration.
