PLSA 2019: DWP struggling to find ‘sweet spot’ for DB superfund legislation

The Department for Work and Pensions (DWP) has yet to find the ‘sweet spot’ between balancing out the need for member security, employer affordability and investor profitability in order to legislate DB superfunds, it has informed the PLSA Annual Conference.

The DWP’s DB consolidation lead, Des Healy, stated that the DWP does not want superfunds to be an alternative to insurance buyouts, so by default it must be cheaper than buyout.

However, the risk appetite for their failure is very low, impacting on the capital the superfunds have to hold. They also need to be profitable for superfunds to receive extra capital from investors.

“These three areas are constantly in tension, so I think it’s fair to say that we haven’t landed on the sweet spot yet of those three areas, and that’s why it’s probably taken us a bit longer to respond to the consultation than we otherwise would have liked,” Healy explained.

“We need to do a bit more work landing on a sweet spot to manage these three areas safely and we will be looking to put that on our consultation response and to legislate as soon as we can.”

The DWP is also trying to encourage existing forms of consolidation, Healy added, and so will be setting up an accreditation regime for DB master trusts, in collaboration with partners in the industry.

“The idea is to give trustees confidence that their scheme is being well managed and meeting clearly defined standards. We are talking to the industry, the master trusts and PLSA and we are working on a template-based approach.

"This should allow trustees to make an easy comparison between their situation and the master trusts offering. We are not trying to set up a comparison site.”

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