The Pension Regulator (TRP) has published its updated guidance on defined benefit (DB) superfunds following a review.

When TPR published its original guidance in 2020, it committed to review the issue of profit extraction within three years.

In a blog post published on TPR’s website, Louise Davey, interim director of regulatory policy, analysis and advice, said that “many things have changed in the last few years” and the industry had to deal with the longer-term market impacts of Covid-19 and material changes in yields and inflation.

For this reason, Davey said that since 2020 TRP widened the remit of the guidance review to “make sure that our superfund regime remains fit for purpose”.

Following an engagement exercise with industry stakeholders earlier this year, TPR amended its guidance in four areas.

Amendments to the guidance

Changes have been made to ease the way for schemes transferring to a superfund. This includes extending the period for the ‘gateway’ as well as providing clarity as to when the regulator believed it is right that a scheme can consider a transfer to a superfund. Changes were also made to allow for more time to demonstrate that the regulator’s expectations for capital have been met.

The regulator also made changes to its funding expectations, amending the discount rate from gilts+0.5% to gilts+0.75% reflecting changes in the market but maintaining saver security as paramount.

TPR said its updated guidance also signals a change in its position on profit extraction. It said it wants to engage further with the pensions industry on how this will work to help create a system that works for both providers and members. An update on this is expected in “due course”.

Finally, the updated regulation provides greater clarity on some of the regulator’s expectations for the assessment process.

Putting members first

Davey added that throughout the review, the regulator kept saver security as its primary focus “while creating changes that should allow for the development of a superfund market”.

She added that trustees will be faced with some complex decisions and will need to obtain appropriate advice to enable them to make an informed decision and to help to ensure that they act in the best interest of their members.

She continued: ”The potential for superfunds to operate alongside other risk transfer and management options offers the potential for a diverse marketplace. We know that superfunds are just part of innovative developments in the DB marketplace and later this year we will publish guidance focused on other arrangements as well.

”There is more to do here but we are committed to enabling innovation in DB which puts better saver outcomes at its heart.”

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