Guest Comment: The risk of DB superfunds

The Department for Work and Pensions (DWP) originally set out in its green paper on defined benefit pension schemes to tackle a very real problem – the perilously-overlooked chasm between the Pension Protection Fund (PPF), and a gold standard insurer buyout.

Sadly, the proposals in their consultation ignore much of this problem. Instead, the consolidation proposals seemingly only help employers to walk away from their obligations to their employees on the cheap.

This is evidenced by the superfunds who have come to the market, and have publicly stated that their intention is to only accept well-funded schemes. As a consequence, there is a clear risk of regulatory arbitrage, which puts member benefits at risk. Whilst the ABI recognises that the ‘gateway’ principles attempt to address this risk, we believe the proposals as they currently stand are insufficient and need strengthening.

This is because superfunds are profit-seeking financial institutions, and will be providing very similar services for employers and their DB scheme members to that of insurers. As such, these services require robust regulation, which will help ensure the financial sustainability of the scheme, and therefore the likelihood of scheme members receiving their pension in full.

It is clear that the regulator of superfunds will need strong rule-making and supervisory powers – more like the Prudential Regulation Authority than The Pensions Regulator.

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