Superfunds pose ‘significant risk’ to PPF - Morley

The Pensions Protection Fund (PPF) could be at risk unless superfunds are subject to strong regulations, its chief executive has warned.

In an interview published in the Financial Times, Oliver Morley said that the commercial consolidators that allow defined benefit schemes to offload their pension obligations posed a “significant risk” to the £30bn scheme.

Currently, the PPF, a £30bn industry-backed lifeboat scheme, will be responsible for covering the superfunds if they fail.

Speaking to the FT, Morley said: “Large superfunds without a strong regulatory environment, without a strong covenant, represent a significant risk for us and we wouldn’t be in a position where we could raise a levy that would fully compensate that.

“The most important thing is there is regulation and that the regulator can obviously use it successfully to ensure that consolidators do behave in the way that will help the market rather than hinder it,” he added.

Last month, Pensions Age reported that The Pensions Regulator and the PPF were the “biggest barriers” to schemes moving to commercial consolidators, as they did not “feel ready” to approve such moves.

As a result, there is a backlog of schemes that want to be able to join a commercial consolidator, according to Barnett Waddingham partner, Danny Wilding.

In December, the government outlined its approach to superfund regulation in its paper on DB consolidation, in which it detailed plans to adopt a system similar to defined contribution master trust authorisation.

TPR will be responsible for assessing the consolidators’ business model, its financial stability, governance and ability to pay members benefits, while employers will have to seek clearance before any proposed transfer to a superfund.

Two commercial consolidators are currently waiting to onboard their first pension schemes, Clara Pensions, which aims to progress schemes towards a buyout, and the Pension Superfund which will not pass members onto an insurer.

Morley added: “The most important thing is there is regulation and that the regulator can obviously use it successfully to ensure that consolidators do behave in the way that will help the market rather than hinder it.”

Responding to Morley's comments, Clara Pensions CEO, Adam Saron, said: “While members can benefit from consolidation today, we strongly support the PPF’s call for a robust and clear regulatory regime. We know this is also a priority for the government as it prepares to respond to the recent consultation on consolidation.

“We are encouraged by the recognition that different consolidation models can provide greater safety for members. Clara members will begin their journey with a safer pension supported by our strong, transparent and, crucially, funded covenant. Our bridge to buy-out model puts members first.”

The government is currently considering its response to the consultation.

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