Thursday 18 June 2020 12:03 am

A new 'superfund' scheme for pensions

Guy Opperman is minister for pensions and financial inclusion.

Pensions minister Guy Opperman announces a significant step towards transforming retirement saving

The consolidation of defined benefit pension schemes into “superfunds” has the potential to deliver more secure retirement incomes for workers, while allowing employers to concentrate on what they do best: running their businesses.

That’s why I welcome the Pensions Regulator’s interim regime for defined benefit (DB) superfunds as a significant step towards a healthier and stronger pensions landscape.

This guidance, and the learning from the experiences of early transactions, will provide valuable insights as we work towards finalising a permanent superfund regime.

Superfunds provide an opportunity for DB pension schemes to benefit from improved funding, economies of scale, better governance and a substantial capital buffer, increasing member security.

Properly managed, they have the potential to improve the likelihood of pension scheme members getting their benefits in full, while also providing employers who are unable to secure an insurance buyout with a new affordable option to manage their liabilities.

In exchange for a significant upfront payment, employers are released from their legacy pension obligations with schemes benefiting from the improved security and professionalism a superfund aims to provide.

But to enable these superfunds to operate effectively, they need clarity on how they are expected to function. The Pension Regulator’s interim regime will help ensure that this emerging market develops in a controlled manner, with clear standards within an appropriate framework.

It will mean the regulator has a much firmer basis to take action against a superfund, should they deem it a necessary and proportionate step. If at any point it appears that changes to the interim regime are required, the government and the Pensions Regulator will take prompt, robust action.

While the publication of interim guidance is a positive step, I must enforce the message that this is an interim regime. Market participants should not assume that the permanent regime will automatically replicate the interim one.

The interim guidance will remain under review to ensure that it is properly protecting and advancing the interests of pension scheme members and the Pension Protection Fund.

The government is committed to continuing to develop a permanent regime, which may involve an alternative set of conditions, including more prudent requirements. This legislation will be subject to full and proper scrutiny and we cannot preempt the parliamentary process

But while I can’t guarantee exactly what the future regime will look like, I can commit to this: it will be designed to protect pension scheme members and the Pension Protection Fund, including by ensuring that superfunds have the necessary flexibility to continue contributing to a strong pensions ecosystem, in which sponsoring companies and scheme trustees have a range of options open to them.

We 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.

Today marks another significant step in the right direction for UK pensions: a step towards transforming retirement saving for the benefit of the industry, savers, and wider society.

Main image credit: Getty

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