The new Labour government has quickly made pensions a priority, with a Pensions Schemes Bill included in the King's Speech just one week after the election, and a "landmark" pensions review launched within the first month.

The Pensions Schemes Bill highlighted the government’s intentions regarding defined benefit (DB) superfunds, with specific proposals for legislation on commercial superfunds.

Work on DB superfund legislation is not new, having been ongoing since the government’s 2018 consultation on how superfunds would operate.

But the pace of this work has disappointed some in the industry, as Work and Pensions Committee chair, Stephen Timms, previously pointed out that this consultation was “by far the longest outstanding consultation” , taking five years for the government to respond.

The progress on Superfunds

Despite a lack of response from the government on its 2018 consultation, pension superfunds made gradual progress since 2020 when The Pensions Regulator (TPR) committed to assess how savers transferring into DB superfunds would be protected.

In June 2020, TPR published guidance for DB superfunds after consulting with the industry, though further clarity was sought.

That same year, the Pension SuperFund (PSF) announced its official registration as an occupational pension scheme by HMRC and the Pension Schemes Bill was passed in the House of Lords, but it did not mention superfunds.

In October, TPR issued further regulatory guidance for trustees and sponsoring employers of DB schemes considering transferring to a superfund.

Industry experts hailed this as an “important step on the long and winding road to superfunds” and a “game changer”, though, concerns were raised about the covenant assessment making the clearance application more onerous.

In November 2020, MPs proposed amendments to the Pension Schemes Bill to include DB pension superfund regulation, but these were left out of the final Pension Schemes Act 2021.

This omission further increased industry frustration, as superfunds were no further along.

The following year, the government announced a review of the appropriate taxation framework for superfunds, with TPR later confirming its continued support for the Department for Work and Pensions (DWP) in developing the legislative framework, expected in 2022/23.

This raised hope among industry experts, with some saying that progress on superfunds might come sooner than anticipated.

November 2021 also marked a “significant milestone” when Clara Pensions became the first superfund to complete TPR’s assessment, but the industry warned the decision to transfer to a superfund would require “careful analysis” to meet TPR tests.

But Clara’s first transaction would not take place until two years later, with the Sears Retail Pension Scheme trustees transferring around 9,600 members to Clara Pensions in 2023.

This was the UK’s first DB superfund transaction, described by industry experts as a “long and challenging” process due to numerous regulatory, financial, and practical hurdles.

Despite Clara’s success, it remained the only authorised superfund after PSF was mothballed after three failed assessments, which the group attributed to unclear TPR requirements, particularly a lack of ‘profit extraction’ guidance.

The 2023 Mansion House reforms marked a turning point as the DWP finally responded to its 2018 consultation, confirming plans for a permanent superfund regulatory regime to help sponsoring employers and trustees manage DB liabilities, with legislation promised “as soon as parliamentary time allows”.

Later that year, TPR updated its regulatory guidance on superfunds, aimed at easing the transfer process and providing greater clarity on TPR’s expectations for the assessment process, what PSF had been waiting for.

The industry saw this as “opening the door” for more superfund activity, with TPR making and “potentially significant” easement to the gateway criteria.

March 2024 also saw the UK’s second superfund transaction, with the Debenhams Retirement Scheme trustees agreeing to a £600m bulk transfer to Clara, marking the first deal from a scheme that has been through the Pension Protection Fund (PPF) assessment.

This move was seen by the sector as potentially easing concerns around early adopters of superfunds, although progress on a legislative backdrop remained elusive.

Indeed, despite the government’s renewed focus on superfunds and promises to introduce a permanent superfund regime “as soon as possible”, the 2023 King’s Speech omitted any mention of superfunds.

This only built on the frustration, as industry experts expressed disappointment over the continued lack of permanent legislation, particularly given emerging discussions around a potential public sector consolidator.

And whilst industry experts welcomed Chancellor Rachel Reeves’ announcement of the pensions review, they cautioned against measures that could “disrupt the well-functioning insurance market or stifle the development of the superfund market”.

In particular, experts stressed the need for any public consolidator’s terms align with those of commercial superfunds to ensure a fair and balanced approach.

But progress has been seen in recent months, as, in July 2024, TPR published further guidance on superfunds, including expectations for CBA and capital release.

The new government's Pension Schemes Bill also included proposals for legislation on defined benefit commercial superfunds were part of the bill, although it did not mention potential legislation to allow the Pension Protection Fund (PPF) to act as a public sector consolidator.

With the government's renewed focus on superfunds and updated regulatory guidance, many in the industry are optimistic that these long-awaited developments will finally pave the way for a more robust and sustainable pensions landscape.

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