Over 1 in 10 DB schemes have considered superfunds

Over one in 10 (11 per cent) UK defined benefit (DB) pension schemes have discussed superfunds as an option for their target end-game, according to a survey conducted by Willis Towers Watson.

The survey found that a further 9 per cent of DB schemes were planning to explore superfunds as an end-game option in the near future, with nearly two-thirds (62 per cent) of participants stating that they thought superfunds were a positive development for scheme members.

More than a third (34 per cent) were unsure in their perception of superfunds and just 4 per cent thought they would not be a positive development.

Willis Towers Watson pensions de-risking team senior director, Costas Yiasoumi, said: “We would expect that over time, as superfunds become authorised and complete their first transactions, this option will be on the agenda for an increasing number of schemes.

“Superfunds could present an opportunity for schemes with a 'burning platform', such as a weak or uncertain covenant, who cannot afford to buyout.

“Those reluctant to jump in too quickly are likely to keep a close eye on progress and would move superfunds on to the table as an option should they become a regular feature of the DB landscape.”

When asked if they would accept the offer of a final lump sum contribution from the sponsoring employer, subject to the scheme transferring to a superfund, over a quarter (26 per cent) of the surveyed schemes claimed they would agree in principle, subject to due diligence.

Among those who said they would decline, 35 per cent said they had a strong sponsor covenant and desire to buyout or run-off, 18 per cent said it was because they were well funded on a buyout basis already, 8 per cent were reluctant to be early adopters and 7 per cent thought members might be concerned by the move.

Yiasoumi explained that he thought more schemes would “embrace such an offer from the employer” if superfunds become a more regular feature of the landscape, adding that this suggested “superfunds could have considerable scope for growth”.

In an alternate scenario, with schemes being put in the position of needing to secure members’ pensions in their scheme that was 90 per cent funded on a buyout basis but their sponsor became insolvent, 40 per cent said they would transfer the scheme to a superfund that promised to meet benefits in full, on the assumption that lower benefits would be received if the superfund failed.

The remaining 60 per cent of respondents said they would prefer to enter an insurance buyout that guaranteed members would receive 90 per cent of their benefit on average with the security of the insurance regime to ensure it was no less.

Yiasoumi said: “There is clearly an appetite for superfunds and an acceptance that they can have a role to play in delivering good member outcomes for a significant minority of DB schemes. However, it is still early days. Time will tell if superfunds become a permanent feature of the landscape or remain niche players for niche circumstances.”

The Pensions Regulator published its interim regulatory regime for prospective DB pension consolidation vehicles in June, with the aim of ensuring that savers in DB schemes that move to superfunds are protected in the period prior to government legislation being passed.

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