New superfund rules set to lead to new ‘creativity’ in tackling DB funding issues – Gordon Watchorn, LCP

Responding to the Pensions Regulator’s interim framework for the regulation of superfunds, Gordon Watchorn, Head of Corporate Consulting at LCP said:

“This new guidance is a major step towards opening up the superfund market after years of stalemate. Although it is described as an interim framework, this approach will apply until Parliament has set out its own rules and any such legislation is likely to be several years away. A variety of consolidator models is springing up and it is welcome that the Regulator is looking to have a single, consistent framework for regulating them all. With the significant challenges facing many sponsors in light of Covid 19, superfunds may now offer a real option for some schemes that are unable to reach buyout in the near term.

"Whilst the consolidator approach will not be the right answer for all, many sponsors and trustees will wish to give careful consideration to the range of capital-backed solutions, both the existing superfunds and others that are likely to emerge. Insurance buy-out will continue to be the major part of the market as sponsors and trustees will want to go down that route where affordable but the announcement today paves the way forward for the first superfund transactions. The Regulator had to strike a tricky balance between ensuring adequate member security and facilitating a viable market for superfunds. The new frameworks sets a high bar but overall the publication of this new framework is an extremely welcome step and will lead to considerable creativity in tackling the long-term funding challenges of Britain’s DB pension schemes”.

You can read more analysis of the guidance here