External capital is being used in innovative and exciting ways to support DB pensions.

The challenge for legislators and regulators is to keep up with these developments.

Consider DB superfunds; government policy was to encourage consolidation vehicles to replace small DB schemes that are unable to afford strong governance or investment performance.

The two vehicles that have so far emerged, however, are targeting a rather different market of well funded schemes with relatively weak employer covenants.

We are also seeing the use of other structures involving external capital and investment structures that combine a scheme’s assets with external capital without breaking the link to the sponsoring employer.

We still await a statutory regime for all this, although providers are active in the market and the regulator has published interim guidance.

Longevity swaps are also now becoming more widely available, to add to the choices now available to pension schemes.

It is time for industry and regulators to work together to ensure innovation is directed at the most pressing problems and to create an environment that encourages innovation whilst also protecting members.

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