Updated guidance for superfunds from the Pensions Regulator (TPR) has been welcomed by UK consultants, who claim it will open the door to more superfund activity.

As part of its commitment to review the guidance within three years, TPR yesterday published four amendments to its superfund guidance.

According to Richard Gibson, partner at Barnett Waddingham, the updated guidance is “undoubtedly a positive step forward”.

He pointed out that “it has been clear for some time” that the “inflexible and opaque” interim regulatory regime, published in 2020, has been a barrier to meeting the government’s policy objective of supporting an active market in commercial consolidation for defined benefit (DB) pension schemes. 

Gibson believes the changes made to the minimum funding requirements should allow superfunds to offer the “right balance between attractive pricing and security for members’ benefits”.

He continued: “The relaxations to the timescales in which transactions are assessed should also make it easier for deals to complete, without the risk of falling through at the last minute due to changes in market conditions.”

Meanwhile, Gordon Watchorn, partner at LCP and head of corporate consulting said that a combination of relaxed entry requirements and more competitive pricing “opens the door to more superfund activity”.

He said: “Pension schemes can now start to forge ahead knowing they have the information needed to make informed decisions about the options for their scheme and with the comfort that the Regulator is doing all it can to allow the market to develop and thrive. Sponsors need to revisit their pension strategy to ensure the next phase of the journey is optimal based on all options available.”

He added that sponsors and trustees should now have comfort in the viability of these consolidator options and existing consolidators in the market may see interest turn into completed transactions.

Watchorn also believes that the updated guidance could pave the way for a number of new providers to make their entrance into the market, which he said “would be great for schemes considering this option”.

Too little too late

However, Stewart Hastie, partner at Isio, pointed out that while the update on how trustees should look at superfund transfers will help, it is “too little too late” given how funding levels have “leapt ahead and there remains only one superfund in town”.

He said: “Over five years on from when commercial vehicles first launched, we still await the elusive first superfund transaction and it is difficult to see the floodgates now being open. We predict more of a very small trickle. If there are lessons to be learned, it is perhaps more about the pace at which the regulation of new ideas and solutions operate.”

Gibson added that the “obvious gap” in TPR’s guidance is an updated stance on allowing superfunds to extract profits prior to securing members’ benefits with an insurer.

He said: “It is good to see that TPR intends to return to this topic in the future but, until they do, superfunds offering a ‘bridge to buyout’ solution will have a clear advantage over those not linked to the insurance market.

“TPR must be much clearer on this point if they hope to attract new entrants to the superfund market over the coming months,” he added.

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