The Pensions Regulator has been approached a “number of times” by companies working on capital-backed consolidation models, according to Charles Counsell, who has called for superfund legislation.
Speaking at a Society of Pension Professionals conference on September 22, TPR’s chief executive urged anyone considering setting up a capital-backed model to consolidate defined benefit schemes to approach the regulator.
“We’ve been approached quite a number of times about different capital-backed models, and what I would say is that if you are involved in a capital backed model in anyway, come talk to us. Because better to have that conversation on how we would treat it before you get too far to turn the other way around,” he said.
We’ve been approached quite a number of times about different capital-backed models, and what I would say is that if you are involved in a capital-backed model in anyway, come talk to us
Charles Counsell, TPR
Currently, the superfunds model — where DB schemes are consolidated and the employer link is severed — is based on TPR’s interim regulatory regime, published in June 2020.
In October 2020, the watchdog published guidance for trustees considering transferring to a superfund, while Clara-Pensions — one of the two consolidators formally announced in the market — received approval from TPR in November 2021.
The Department for Work and Pensions’ consultation on this area was launched in December 2018, but is still awaiting a government response.
Counsell noted this gap in legislation. “We really do need to get it on a statutory footing, and similarly other capital-backed opportunities would be better if on a statutory footing,” he said.
He added that “quite a lot” of the different capital-backed models seen by the regulator “very much do really come under the auspices of what we look for in a superfund, so in effect they are caught by the interim guidance”.
“What we do need to ensure is that the capital being injected effectively replaces the employer covenant - in fact, hopefully improves the employer covenant,” he said.
Pensions Expert reported on a capital-backed transaction with an unnamed scheme in May 2020, when the regulator announced it would “be looking to publish guidance on this developing area”.
Consell noted that TPR’s approach to the superfunds’ assessment process is similar to the defined contribution master trusts’ authorisation process.
However, he added that the aspect “that is quite different is the financial sustainability part of it, because what is happening is that you are removing the employer covenant and you are replacing it with a capital buffer”.
“So what we [have] got to ensure is that the capital buffer is secure and adequate in order to achieve the aim we want to, and that there is a high degree of certainty, that members will get the benefits they were promised,” he said.
TPR to publish diversity and inclusion guidance
Counsell also revealed that the watchdog will be publishing guidance on diversity and inclusion by the end of the financial year.
“I cannot emphasise enough that diversity of thinking on trustee boards will lead to better outcomes for savers,” he argued.
He noted that TPR implemented a new diversity and inclusion strategy in 2021, and the launch of a board diversity industry working group.
This group has been working on four streams, looking at the role data can play in bringing diversity and inclusion to governing bodies, developing best practice in the composition of boards, developing practical tools to share best practice on recruiting trustees, and delivering engagement with employers to help broaden the appeal of trusteeship.
Counsell added that the watchdog plans to publish an action plan detailing all of the working groups’ outcomes later this year, followed by guidance.
“[There is necessary work] to convince some trustees of the need to effectively consider issues of equality and diversity,” he said.
“These are not ‘nice-to-have’ matters, they are essential to the successful management of schemes.”
Counsell hopes for policy consistency
TPR’s CEO, who will be stepping down from his role in March, hopes his successor continues to build on the work done so far, “and you don’t have to try to change directions”.
He noted that the same can be said for ministers, after the announcement on November 20 that Guy Opperman had been removed from the pensions minister role.
At the time of writing, a new minister has yet to be appointed, despite two MPs — Claire Coutinho and Alex Burghart — being named parliamentary under-secretary of state at the DWP.
APPT pushes for diversity and inclusion in trustee boards
The Association of Professional Pension Trustees has launched a “hints and tips” briefing focused on diversity and inclusion, in a bid to influence how trustees go about shaping their boards.
“We should continue on that direction of travel and don’t do sudden, unexpected changes,” Counsell said.
He also pointed out that over the years, ministers have tried to build up a cross-party consensus around changes in the pensions industry.
“And because we know pensions is such a long-term game, that cross-party consensus means [that despite not knowing] who will win the next election or the one after (…) you’ve got that consistency running through politically [which] is really important,” he added.
