The Pensions Regulator (TPR) said it is committed to supporting a wide range of innovations in the defined benefit (DB) market in the interest of savers.

In a blog post published today, the regulator outlined a number of areas in the DB market it is seeing innovation, including consolidation.

David Walmsley, interim director of supervision and market oversight, said that consolidation is a “hot spot” in both defined contribution (DC) and DB markets, with the regulator seeing “fewer, larger pension schemes”.

“We believe that the benefits of economies of scale, strong governance and access to investment expertise in larger, better-resourced schemes will help to drive stronger outcomes for savers,” he said.

And as funding positions for many DB schemes improve, Walmsley said that new models and propositions are making their way into the market in response to increased demand for consolidation options – one being superfunds.

“We are pleased that in the past few months the superfund market has gained traction with the first two transactions to Clara,” Walmsley said.

Clara-Pensions completed its first transaction last November with Sears Retail Pension Scheme. The second transaction saw Debenhams Retirement Scheme exit the Pensions Protection Fund (PPF) in a £600m bulk transfer this March.

He said the regulator wants to see an emerging competitive superfunds market that offers “enhanced security for savers”.

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TPR says that ”innovation is fundamental to delivering better outcomes for savers”

But he added that ultimately, these are commercial vehicles and TPR will shortly publish its approach to the profit release mechanism in superfunds to provide the “right balance between commercial incentives and saver protection”.

Alternative arrangements

TPR is also continuing to develop its regulatory approach to DB alternative arrangements, including capital backed journey plans (CBJPs), which are being proposed as an option in scheme rescue scenarios.

Walmsley said: “We are looking at this area with our focus being on savers receiving their full benefits.”

He said that TPR also plans to publish new DB alternative arrangements guidance later this year to help trustees and employers navigate alternative arrangements, including CBJPs.

“We and government believe that innovation is fundamental to delivering better outcomes for savers,” he continued, adding that TPR is keen to support new market propositions where they provide both a clear benefit to savers, and also have the right protections around them. One cannot come without the other, he said.

“That is why sometimes we have to sound a note of caution,” Walmsley continued.

Supporting DC pensions

Walmsley pointed out that one option that needs careful thought is the idea of offering to pay DB pensions to DC savers who transferred into it.

He said that while the regulator can see the potential in supporting the development of a new option for DC savers at retirements, savers need new products to sit within appropriate regulatory and supervisory frameworks.

“Our priority is to make sure protection is balanced with innovation in saver interests,” he stated.

Walmsley added that together with other regulators, TPR is continuing to consider whether a solution like this one could be supported. In the meantime, he said that the regulator would not expect the market to develop further until this question is resolved.

He said: “TPR is ready to engage positively with pension providers considering bringing new propositions to market and welcome options that offer trustees greater choice, while ensuring appropriate protection for savers.

“We also expect trustees considering transferring savers into a new type of scheme to engage with our market oversight team to make sure that they are meeting our expectations to protect savers.”

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