Insurers and superfunds in focus as peers debate FSM bill
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An amendment to the financial services and markets bill that would expressly allow insurers to offer superfunds outside of Solvency UK has been proposed by Baroness Ros Altmann.
Altmann tabled the amendment last Wednesday, backed by Baroness Sharon Bowles. This would allow life insurers to set up defined benefit pension superfunds outside of their Solvency UK ringfences, “enabling them to participate in the superfund market and potentially even help the UK build its own version of Canada’s much-vaunted Maple Eight”, Altmann said.
The peer argued that superfunds could provide a means to add “billions of pounds worth of productive capital into the UK economy and allow pension members to enjoy better benefits, rather than superfunds remaining niche players, if the current system is not changed”.
Superfunds offer “robust alternatives to the finality of annuity buyouts, which are generally considered 100% safe but could well not be”, the former pensions minister said.
“In particular, there are concerns about systemic risk with annuity buyouts,” she added, potentially alluding to concerns raised by the Prudential Regulation Authority about regulatory arbitrage through funded reinsurance.
“In particular, there are concerns about systemic risk with annuity buyouts,” she added, potentially alluding to concerns raised by the Prudential Regulation Authority about regulatory arbitrage through funded reinsurance.
Lord David Pitt-Watson – the finance and pensions expert appointed as a parliamentary secretary by Andy Burnham – said in response that the government recognises the role DB scheme consolidation can play in improving outcomes for members and providing additional options to schemes.
However, he said that insurers are already able to set up and run superfunds under the current rules.
Giving explicit permission for PRA-authorised insurers to operate DB superfunds and introduce requirements about the separation of superfund and insurance would mean that the “primary effect is to place requirements relating to ringfencing, capital treatment and the separation of activities into primary legislation”, he said.
“The government’s view is that matters relating to prudential regulation, capital treatment and the supervision of regulated firms are more appropriately addressed by the relevant regulators rather than through detailed provisions in primary legislation,” Lord Pitt-Watson added.
He agreed to meet with Altmann to talk through her concerns or ask relevant officials to do so.
