The Pension SuperFund co-founder Edi Truell responds to PIC’s call for a consolidator to take on smaller underfunded schemes.
I read with great interest PIC chief executive Tracy Blackwell's call for a single superfund to consolidate the very many smaller schemes with weak sponsors, who are underfunded on a s179 basis.
There are literally thousands of these schemes across the UK and I fear for the security of those members, particularly post Covid-19. Fundamentally, what has developed is a poor way to run pensions which is bad for members and bad for the UK economy.
As I read on, the areas of agreement just kept on coming. The consolidation of these underfunded pension schemes into a superfund would "have immediate economies of scale, a comprehensive risk-based framework, a well-developed governance framework and a proven investment track record". Couldn't agree more.
Further, that a such a consolidator could, "operate with the objective of optimising the outcomes for members' benefits that are most at risk, and manage the liabilities to better protect the PPF from scheme failures". Bravo!
We like the idea of some form of ‘mutual'. This is why The Pension SuperFund's model uniquely establishes a mechanism which shares profits between members and investors. This mutually beneficial arrangement whereby members' pension promises are not just better secured, but materially improved upon over time, is proving highly attractive with ceding trustees, particularly now that The Pension SuperFund has achieved registration with HMRC.
Sponsoring companies do, though, need to make good some of their scheme's deficits before entering into a superfund and many of them simply don't have the cash to do so. This is why we designed the Pension SuperFund to be able to accept some of the top up in shares in the ceding company. However you look at it, replacing the sponsor covenant of a single company, good or bad, with a properly diversified set of prudently managed financial assets has to be a safer place to be.
At the macro level, UK plc is staring down the barrel of some huge challenges post Brexit and now post Covid. UK plc includes those 3,600 or so companies sponsoring underfunded DB schemes and weighed down by the need to do so. As pointed out by the Social Market Foundation in its recent report, superfunds have a major role to play in this. They create a better, safer deal for members, release sponsors to focus on growing their businesses and employing more people, and will have the long term ability to invest in infrastructure which will get this country moving again.
Edi Truell is co-founder of the Pension SuperFund
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The Willis Pension Scheme has entered into a longevity swap transaction with Munich Re to manage longevity risk in relation to around £1bn of pensioner liabilities.
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Sponsors whose pension schemes complete buy-ins or buyouts tend to outperform their peers by between 0.25% and 3% on average, Mercer research finds.