TPR's new superfunds guidance sets expectations on surplus use and PPF+
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The Pensions Regulator is setting its expectations for the release of capital from defined benefit superfunds and on schemes of insolvent employers using superfunds and capital-backed arrangements, as part of updated guidance published on Friday.
The guidance comes after the government announced last week that it will finally legislate for superfunds, as part of a pension schemes bill it plans to introduce.
TPR said it has “listened closely to the industry regarding capital release” and that the position in the updated guidance “supports innovation, while retaining protection for scheme members”.
Capital can be released up to twice a year, and when meeting a specific trigger and safeguards, the guidance states.
The regulator said it has also listened to industry on the role superfunds and capital-backed arrangements could play for schemes of insolvent companies. It now allows trustees to let such a scheme enter into a CBA or superfund on a reduced capital adequacy basis “where the alternative is for the scheme to buy out on less than full benefits”.
TPR expects superfunds and capital-backed arrangements to increase as the DB market consolidates.
“The introduction of capital release will make it more attractive for providers to enter the market because it will enable surplus above a healthy funding level to be taken ahead of buyout,” said Nina Blackett, interim executive director of strategy, policy and analysis, adding: “The inclusion of superfunds in the new pension schemes bill should provide confidence to potential market participants.”
The guidance could ruffle feathers with the insurance sector, which has made clear in the past it does not approve of superfunds providing a similar option to buyout with lower capital reserves.
The announcement around capital release comes after disagreements with the Pension SuperFund, the only superfund that was in the market offering a model other than ‘bridge to buyout’, and which closed down after failing to pass TPR’s assessment. Last year, Pension SuperFund co-founder Luke Webster told MPs that a lack of clear regulations about the use of surplus were a factor in whether the venture would proceed.
