The Pensions Regulator (TPR) has said that pension superfunds could be a positive for ensuring good outcomes for savers, particularly those in smaller schemes, despite a number of "friction points" seen in the superfund transactions completed so far.

In a blog post, TPR director of supervision, David Walmsley, emphasised that the superfunds market is growing, stating that “it is clear the superfunds model works, if all the tests are met”.

“And as a regulator we are serious in our support for innovation that benefits savers”, he continued.

According to TPR's estimates, approximately 40 per cent of defined benefit (DB) schemes could potentially have met its “Gateway tests 1 and 2” at the end of 2024, and could consider whether a transfer to a superfund was in their members’ best interests.

Smaller schemes were particularly in scope, as of those 40 per cent of schemes, around 1,400 had less than £100m assets and 900 less than £25m assets.

The regulator suggested that smaller schemes are also more likely to benefit from improved governance and access to investment and risk management opportunities that may otherwise be out of reach, as well as economies of scale in running costs.

"We see DB consolidation, whether in a superfund or more conventional master trust, as a positive for ensuring good outcomes for savers in such schemes," he stated.

However, Walmsley argued that, to help the market to gain scale, the transaction chain needs to run as smoothly as possible, revealing that TPR has seen some “friction points” from its experience of the first three superfund transactions and the wider market.

Walmsley warned that uncertainty remains a persistent theme in particular, with some misconceptions about what is needed from trustees and employers.

“Some familiarity with our expectations of those considering transferring to a superfund is needed in what follows so having our guidance for DB superfunds and DB superfunds guidance for trustees and employers to hand may be helpful,” he stated.

Walmsley also confirmed that TPR is expecting to share further guidance on DB scheme endgame options later in 2025.

Providing further clarification in the meantime though, Walmsley confirmed that schemes do not need to obtain a buyout quote from the insurance market for the purpose of determining whether buyout is affordable.

He also reassured trustees that TPR will have scrutinised the legal and governance structure, systems and processes and key people of all superfunds listed on its website, confirming that TPR would not be concerned if trustees decide to carry out minimal diligence on these aspects.

However, he said that trustees will need a thorough understanding of the superfund’s business model and transaction specifics, and to provide a “comprehensive” rationale for transferring, including supporting advice and evidence.

“A strong rationale is vital where the scheme has on-going employer support (as for Wates), but it is a misconception that we will not provide clearance in these circumstances,” he stated.

Walmsley also confirmed that the regulator is listening to feedback from the industry in key areas, including concerns that continuing boundary conditions right up to the date of transfer is impracticable.

“We accept that there comes a time when all parties must commit. In practice, we would unlikely be concerned if boundary conditions terminate on the date members are notified of the pending transfer (normally 30 days in advance),” he clarified.

“We will, however, ask you to explain why you are comfortable with this.”

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