TPT Retirement Solutions plans to launch a defined benefit (DB) superfund designed to run on rather than target buyout, after securing capital to support the first £1bn of transactions.
Both The Pensions Regulator (TPR) and the Department for Work and Pensions (DWP) have expressed support for the development of superfunds, which offer pension funds an alternative endgame option.
Superfunds take on the obligation of meeting DB liabilities from sponsoring employers and are aimed at schemes unable to afford a full buyout.
So far, Clara-Pensions is the only UK superfund assessed by TPR, with a buyout model. TPT’s planned run-on structure would broaden the range of options available to trustees and employers.
Superfunds are increasingly seen as a realistic solution for pension funds that remain short of buyout funding, despite stronger funding levels across the sector.
Around four in five UK DB schemes are now in surplus, with aggregate funding at 120% on a technical provisions basis. A run-on superfund could allow investment in growth assets while aligning with the government’s ambitions to boost long-term UK investment.
TPT said the £1bn of committed capital would be sufficient to fund several transactions, subject to regulatory approval and market conditions.
The pensions manager said its superfund has been designed with members’ interests “at the core”, with the aim of increasing the likelihood of full benefits being paid. It plans to distribute surplus to members from year five onwards, increasing to a majority share once investors’ risk capital has been returned.
The move follows TPT’s May announcement of plans for a multi-employer collective defined contribution (CDC) scheme and its recent launch of a DC income-for-life proposition. Subject to authorisation, TPT would have six consolidation vehicles, cementing its position as one of the UK’s most active innovators in pension solutions.
Laura Amin, head of DB consolidation at LCP, said the development was “very significant”, widening options for schemes and adding momentum to the superfund market.
She added: “It’s encouraging to see the increased choice and flexibility for pension schemes with TPT’s model supporting long-term run on rather than acting as a bridge to buyout – and with the potential for surplus sharing with members after five years.
“We expect that we will see further new entrants come to market over the coming year, with further innovation in the models (including on the use of surplus), which will act as key differentiators for trustees.”
Richard Wellard, head of alternative risk transfer at Hymans Robertson, said Clara-Pensions “led the way” in creating innovative solutions, and TPT appears set to “continue this trend with the member augmentation model”.
“We anticipate further innovation in this space will continue as the superfund market goes from strength to strength, he noted, adding that the prospect of using future surplus for member augmentations will be interesting and appealing to a wide variety of pension funds.
“This will also provide healthy competition into the superfund market. It’ll be more important than ever for schemes and sponsors to fully understand the range of options available to them in a fast-changing landscape.”
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