The Pensions Regulator (TPR) will scrutinise all defined benefit (DB) superfunds that enter the market to ensure any risks are identified, assessed and mitigated.
DB superfunds seeking to enter the market need to talk to TPR about their plans before opening for business, according to new guidance published.
Superfunds are DB schemes established to accept bulk transfers of assets and liabilities from other DB schemes. Instead of ongoing employer covenant, member security comes from a capital buffer provided by the former sponsor and investors who expect to profit from the arrangement.
To ensure pension savers are protected, TPR has set out its expectations of DB superfunds which intend to operate before any authorisation regime is put in place and whilst the authorisation framework planned by government is under consultation.
David Fairs, executive director of regulatory policy, analysis and advice at TPR, said: “We believe DB superfunds are potentially a force for good and can provide a secure and safe place for pension saving and help drive up standards.
"However, as these schemes come to market, we need to give savers confidence now that these schemes are well-governed, run by fit and proper people and are backed by adequate capital. That’s why we have issued guidance making it clear we will supervise superfunds. They will need to seek our authorisation in due course once legislation has come into effect.
"By coming to us now, superfunds can show us how they plan to meet the standards we and government expect, and prevent possible regulatory action further down the line.”
The Department for Work and Pensions’ (DWP) consultation on consolidation of DB schemes proposes a range of areas in which TPR will have to be satisfied. TPR’s guidance reflects the consultation proposals.
The DWP’s consultation also seeks views on a new legislative framework for authorising and regulating defined benefit superfund consolidation schemes and closes at February 1 2019.