Baroness Ros Altmann has tabled an amendment to the Financial Services and Markets Bill that would enable Prudential Regulation Authority (PRA)-authorised life insurers to establish, own or operate defined benefit (DB) superfunds outside their core insurance business.

Amendment 92, co-sponsored by Baroness Bowles of Berkhamsted, would allow a life insurer to operate a DB superfund either directly or through another company within the same group, notwithstanding Solvency UK rules that otherwise restrict insurance undertakings to insurance business.

It was tabled during the bill's report stage in the House of Lords.

Under the amendment, a DB superfund would be defined as a trust-based occupational pension scheme that has received DB liabilities from another occupational pension scheme, is supported by a capital buffer, and no longer has a substantive employer covenant or is being managed with a view to becoming such an arrangement.

However, the proposed change would require strict legal, financial and operational separation between an insurer's core insurance business and its superfund activities.

For example, assets backing the insurer's capital requirements could not be used to support or subsidise the superfund, while superfund assets could not be used to meet the insurer's Solvency Capital Requirement.

The amendment would also prevent the failure of a superfund from triggering a transfer of capital from the insurance business that could weaken policyholder protection, while requiring the PRA to develop rules prohibiting intra-group transfers and cross-subsidies between the two businesses.

New Capital Consensus (NCC) backed the proposal, arguing that opening the superfund market to established life insurers could increase competition and enable more DB pension assets to remain invested for the long term rather than being transferred directly to buyout.

NCC director, Ashok Gupta, said: “We're delighted that Ros is raising this opportunity to the government and fully support her in doing so.

“The £1.3tn DB market has enormous potential to transform the UK economy and boost outcomes for savers, but only if buyout isn't seen as the only game in town.”

Gupta argued that allowing life insurers to establish superfunds outside their Solvency UK ring-fenced insurance businesses could allow “billions of pounds” of capital to be deployed into long-term investment vehicles capable of supporting UK growth.

He also called for superfunds to be viewed as long-term investment vehicles rather than simply a “bridge to buyout”.

“If we allow UK-champion life insurers to establish and operate them, we can build our own version of the Canadian Maple-8, which has established access to capital, abundant in-house expertise and a financial sponsor protecting members,” he added.

The amendment follows recent calls from NCC for greater use of collective risk-bearing vehicles across the pensions market.

In its Redistributing the Risk Burden report, the think tank argued that the decline of collective risk-bearing arrangements and continued de-risking of DB schemes had reduced the pensions industry's capacity to invest for the long term.

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