On the go: The Department for Work and Pensions has outlined its thinking on the regulation of commercial defined benefit consolidation vehicles in a consultation, removing a major hurdle to scheme sign-up.
Consolidators will have to offer schemes a 99 per cent chance that their members are paid their benefits in full, in addition to a number of requirements for authorisation that borrow from the Pensions Regulator’s regime for master trusts.
The consultation also suggests that if a superfund reaches buyout levels of funding, “the rationale for remaining in a regime without a sponsoring employer, but with lower protection than an insurer could provide, falls away”, but stops short of proposing that consolidators must buy out.
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
David Fairs, the Pensions Regulator
The document proposes gateway conditions for schemes to be eligible for transfer into a consolidator, such as not being in a position to buy out benefits within five years. Transfer must also improve the chances of paying benefits in full.
The government is proposing to stop consolidators taking profits once a low funding trigger is reached, with lower funding triggering mandatory wind-up to protect the Pension Protection Fund.
Regulator wants to be front and centre
Legislation and authorisation will take time to put in place. In the interim, the regulator’s executive director of regulatory policy, analysis and advice David Fairs urged consolidators to work with the watchdog.
“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,” he said.
The regulator has also published guidance for trustees stressing that a transfer must be in the interests of members, and will require that employers seek clearance before proceeding to break the sponsor link.
The two commercial consolidators currently on the market, Clara Pensions and The Pension SuperFund, still have questions to answer. For example, Clara is yet to name its capital backers or administrator.
However, the firms are in a buoyant mood. Adam Saron, CEO of consolidator Clara Pensions, said: “This is really the starting gun”. He added that the company would begin discussions immediately with the regulator over its first transfer.
