Just one in four trustees comfortable with ‘super funds’

Just over one in four trustees would feel comfortable judging whether to hand over their schemes to ‘super funds’, despite their sponsors growing interest, according to Willis Towers Watson (WTW).

The firm’s 2018 Defined Benefit Survey, published today, 26 June 2018, found that 38 per cent of trustees believe DB consolidation into super funds would appeal “very strongly” to corporate sponsors, despite just 26 per cent of trustees saying they would feel comfortable making that judgement.

The survey, which questioned 93 UK pension scheme trustees, also found that just 43 per cent of trustees believe that transferring liabilities into a super fund would “significantly improve” its efficiently.

WTW senior director, Gareth Strange, said: “Many trustees are expecting to be asked by their scheme sponsor to sign-off on moving the scheme into a consolidation vehicle, but our research shows that very few would feel comfortable weighing the potential benefits and disadvantages at this stage. It’s a difficult decision that trustees aren’t used to making.

“The sweet spot for these consolidators is likely to be schemes that are already reasonably well-funded and where the employer could inject some extra cash quickly.”

However, Strange added that trustees are not confident that the consolidator’s long-term viability is stronger than that of the sponsor, which could lead to a limited take up for super fund consolidation vehicles.

Additionally, WTW research found that a majority of trustees expect different forms of consolidation, with 73 per cent thinking there will be more outsourcing, while 54 per cent see fiduciary management as “likely to experience significant growth”.

“From the employer perspective, some will think they can run the scheme off themselves more cheaply, whereas others may not want the reputational risk of washing their hands of the pension scheme without making benefits fully secure. That leaves consolidators targeting a very small part of the market,” Strange said.

In May, Superfund chief executive, Alan Rubenstein, said that they estimate around £250bn of DB liabilities could benefit in the current market, doubling to £500bn over the next five years.

The former Pension Protection Fund chief executive, who announced the new £500m seeded Superfund in March, said it will be schemes in the middle of the funding spectrum who he expects will be able to capitalise.

Rubenstein added that they hope to have transferred the new schemes by the end of this year.

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