The UK’s Pensions Regulator (TPR) is yet to be convinced that consolidation of defined benefit (DB) schemes into proposed “superfunds” would help the country’s most stressed pension funds.

At the Pensions and Lifetime Savings Association’s (PLSA) investment conference in Edinburgh last week, Lesley Titcomb, chief executive of TPR, said it was positive that concrete work was being done on options to address issues in the DB sector in the UK, but questioned the benefit of superfunds.

In a report released last week the PLSA taskforce argued for consolidation as the best way to address problems in the DB sector, and put forward superfunds as the best solution.

Panellists at the conference – including Titcomb and representatives of the Pension Protection Fund (PPF) and the government’s Department for Work and Pensions (DWP) – welcomed the PLSA’s proposal, but questions and challenges associated with the proposal were quick to come to the fore.

Titcomb said it was “not yet clear” if superfunds would help the regulator deal with the most stressed DB schemes, and also said that the regulator did not think there were systemic problems in the sector – a view it shares with a recent government report.

She said TPR was focused on several hundred pension schemes experiencing issues because the employer was struggling, but she emphasised the regulator did not see this “causing a pile-up on the PPF”.

Titcomb added “the supervision of an entity such as a superfund is a very different proposition to the supervision of something like a mastertrust”.

“I’m not saying we couldn’t or wouldn’t do it, but it’s an entirely different proposition,” she said. “So, interesting work in progress, but lots more questions to come.”

Other panellists also welcomed the work of the task force, but brought up questions and challenges associated with its argument for consolidation and superfunds.

David Taylor, general counsel at the PPF, said the lifeboat shared the regulator’s view that “the system isn’t fundamentally broken from the protection side of things” and that “we don’t see a case for dramatic change to the current system”.

He said the outcomes for stressed schemes were not as binary as the taskforce had argued. The taskforce said in its report that the current system only allows for members to either get full benefits or PPF-level benefits (with reduced indexation and benefit cuts for non-pensioners) if schemes are transferred to the lifeboat fund. 

Systemic risk, modelling and moral hazard

Ashok Gupta, chair of the PLSA’s DB taskforce, said the taskforce’s modelling showed a “significant” number of members would have their benefits cut if action was not taken.

He also disagreed with the idea that superfunds posed a “moral hazard” by discharging sponsors of their liabilities. He argued that reducing the amount of people forced to accept lower benefits it would not constitute allowing employers off the hook.

“It’s giving members something they didn’t have before, and that’s the result we’re trying to achieve,” he said.

Charlotte Clark, director for private pensions and stewardship at the DWP, called for clarity over what consolidation was trying to achieve as this would determine how the framework would have to be designed. Keeping schemes above PPF-level benefits and trying to help employers manage risks and costs were two very different outcomes, she said.

Asked whether there was sufficient political will to back a consolidation project, Clark said there was – if the benefits were clear and the idea could be shown to work in practice.