On the go: The Pensions Regulator’s interim guidance for consolidators has sparked a surge of interest by pension schemes, with one in five considering superfunds as an option for their endgame, according to a survey by Willis Towers Watson.
The survey, which took place as part of a Willis Towers Watson webinar in June, polled more than 280 pension scheme trustees, directors and chief investment officers. It found that as many as 11 per cent of schemes had already discussed superfunds as an option, with a further 9 per cent planning to do so shortly.
Commenting on the survey, Costas Yiasoumi, senior director in Willis Towers Watson’s pensions derisking team, said: “We would expect that over time, as superfunds become authorised and complete their first transactions, this option will be on the agenda for an increasing number of schemes.
“Superfunds could present an opportunity for schemes with a ‘burning platform’, such as a weak or uncertain covenant, who cannot afford to buy out,” he said.
The survey also polled respondents’ attitudes towards superfunds, and found that 67 per cent considered the vehicles a positive development for scheme members, with only four per cent believing they would have a negative impact.
Presented with a range of scenarios to gauge how circumstances affect attitudes to superfunds, 26 per cent of respondents said they would agree in principle (subject to due diligence) to a final lump sum contribution from an employer subject to the scheme transferring to a superfund.
Of those who would decline the offer, a majority (35 per cent) did so on the basis they had a strong employer covenant and desired a buyout or run-off, while other reasons included being well-funded on a buyout basis already (18 per cent), reluctance to be a “first mover” (8 per cent), or due to perceived member concerns about a move (7 per cent).
“Those reluctant to jump in too quickly are likely to keep a close eye on progress and would move superfunds on to the table as an option should they become a regular feature of the DB landscape,” Mr Yiasoumi said.
“We would expect that if superfunds become a regular feature of the landscape, more and more schemes would embrace such an offer from the employer. This suggests superfunds could have considerable scope for growth.”
The survey did reveal, however, that superfunds are still perceived as somewhat risky, as a majority of respondents consider them as being less secure than a traditional insurer.
Asked how they would secure pensions for members in a scenario where their scheme was 90 per cent funded but their employer became insolvent, 60 per cent said they would prefer to enter into an insurance buyout that guaranteed that members would receive 90 per cent of their benefit on average, with the security of the insurance regime ensuring it was no less.
The remaining 40 per cent would prefer to transfer the scheme to a superfund that promised to meet benefits in full, on the assumption that members would receive lower benefits if the superfund were to fail.
