The regulator has updated guidance for commercial
The regulator has also made provisions for defined benefit (DB) schemes with insolvent sponsors that want to transfer to a consolidator rather than buyout with less than full benefits.
Superfunds will be permitted to release capital back to investors “no more than twice a year”, TPR said, subject to stringent solvency requirements.
Superfunds’ total assets must be 33% higher than their minimum capital buffer before money can be released. The minimum capital buffer is set based on the superfund’s risk profile and investment strategy.
Nina Blackett, interim executive director of strategy, policy and analysis, said: “We expect superfunds and capital backed arrangements to increase as the DB market consolidates. We strongly support innovation in the interests of savers, and in updating the guidance we have worked closely with industry.
“The introduction of capital release will make it more attractive for providers to enter the market because it will enable surplus above a healthy funding level to be taken ahead of buyout.
“The inclusion of superfunds in the new Pension Schemes Bill should provide confidence to potential market participants.”
Simon True, CEO of Clara Pensions – so far the only superfund to have completed transactions – said the updated guidance was “an important step forward for the superfund model, enabling more schemes to access consolidation, ensuring greater security for more members and deriving more benefit for the UK economy”.
Clara has said it will maintain its ‘bridge to buyout’ model, meaning its investors will only receive payouts when members are transferred to an insurer.
‘Crucial milestone’ for DB consolidation
Iain Pearce, head of alternative risk transfer solutions at Hymans Robertson, said the guidance was “a crucial milestone” for DB consolidation as it allowed superfunds and other consolidation providers to generate ongoing returns from their operations.
Allowing capital release meant TPR’s updated guidance was “less restrictive and signals that the superfund market is truly open for business and innovation”, Pearce said.
He added: “While we look forward to the day when superfund legislation is passed, that does not feel imminent as we wait for the pensions review from the new Labour government. We therefore expect the market to operate under the latest form of guidance for some time.”
Allowing capital release could improve the pricing of superfunds from a pension scheme perspective, according to Adolfo Aponte, managing director at Cardano Advisory.
“This step will bring superfunds more in line with insurers, many of which regularly pay dividends to their shareholders,” Aponte said. “But we see the guardrails established by TPR today as the bare minimum requirement.
“Robust governance and controls, as well as a clear strategic vision will be key to ensuring the policy does not end up exposing the security of members’ benefits.”
