10% of the UK DB market could transfer to superfunds over the next decade

Up to one million members, representing around £170bn of pension scheme assets or around 10 per cent of the total UK defined benefit (DB) pension scheme universe, could transfer to a superfund over the next 10 years, according to analysis by PwC.

It found that, over the next decade, 600 of the approximately 5,400 DB pension schemes could pass the Department for Work and Pensions’ (DWP) three gateway principles, and be sufficiently well-funded to transfer to a superfund.

PwC also stated that it believes it likely that “several billions” of pension assets will transfer to superfunds in 2021 and 2022.

It predicted that these initial transactions would predominantly relate to schemes whose employer is in distress or already insolvent, noting that the capital buffer offered by the superfunds is expected to offer a “clear improvement” to the likelihood of members receiving their benefits in full.

However, the provider said that superfund transactions are “unlikely to stop there”, noting that future superfund transactions may not be limited to those pension schemes with weak employers.

PwC pensions director, Emma Morton, stated: “As the superfunds grow in scale and build track records of performance, we expect trustees of pension schemes with stronger employers to see the benefit of transferring to a superfund.

“For schemes that have no clear way of securing members’ benefits with an insurance company, but otherwise think that’s the right strategy for them, a superfund could be the next best thing.

“Trustees will need to consider whether a transfer to a superfund would increase the likelihood of members receiving their full benefits.”

Adding to this, PwC senior pensions adviser, Stephen Soper, predicted that the creation of superfunds will also drive further innovation.

He continued: “An obvious alternative structure is one where a scheme transfers to a superfund but retains some employer covenant link.

“We also expect that some well-funded pension schemes will set up their own capital buffer in a similar way to superfunds to support a scheme run-off structure with a contingency for sponsor insolvency.”

The analysis follows the recent news that The Pensions Regulator is to publish further guidance to pensions schemes considering transferring to a DB superfund next week, following the introduction of an interim regime by the regulator.

The Pensions Minister, Guy Opperman, has also confirmed this week that he expects there to be a further pensions bill in the current parliament, which would constitute superfunds legislation.

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