TPR launches interim regime for defined benefit superfunds

Today The Pensions Regulator (TPR) have published regulatory guidance for those setting up and running defined benefit (DB) superfunds.

Since the DWP’s consultation on consolidation of defined benefit pension schemes closed in February 2019, the pensions industry has been waiting in vain for legislation to set out a regulatory framework for superfunds.  There is a lot of enthusiasm and support for the development of superfunds, provided appropriate protections are in place. However, it has been difficult for fledgling superfunds to get to the point of transacting with interested schemes without clarity on the regulatory approach.

While TPR’s guidance is only an interim step pending the introduction of a longer-term legislative framework for superfunds, the hope is that it will provide enough clarity for superfunds to make progress with transactions once TPR is satisfied with their set-up.

Superfunds won’t be the answer for everyone, but there are some schemes for which they could stack up as a genuinely attractive option to provide improved security for member benefits. It can be difficult for trustees to get comfortable with innovative options like a move to a superfund where member benefits are at stake if things go wrong.  The guidance is a big step forward in providing some clarity and reassurance to trustees considering a transfer to a superfund as it sets stringent standards and provides reassurance that TPR will be closely assessing and supervising the operation of superfunds in key areas. This includes measures to ensure that any superfunds that fail to take off can exit the market in managed way, which will be an important concern for any early adopters of transfers to superfunds.