To ensure pension savers are protected, TPR has set out its expectations of DB superfunds which intend to operate before any authorisation regime is put in place and whilst the authorisation framework planned by government is under consultation.
In light of the range and potential scale of emerging business models, the guidance makes clear that TPR will scrutinise all DB superfunds that enter the market to ensure any risks are identified, assessed and mitigated.
David Fairs, Executive Director of Regulatory Policy, Analysis and Advice at TPR, said: “We believe DB superfunds are potentially a force for good and can provide a secure and safe place for pension saving and help drive up standards.
"However, as these schemes come to market, we need to give savers confidence now that these schemes are well-governed, run by fit and proper people and are backed by adequate capital.
"That’s why we have issued guidance making it clear we will supervise superfunds. They will need to seek our authorisation in due course once legislation has come into effect.
"By coming to us now, superfunds can show us how they plan to meet the standards we and government expect, and prevent possible regulatory action further down the line."
The Department for Work and Pensions consultation on consolidation of defined benefit pension schemes proposes a range of areas in which TPR will have to be satisfied. TPR’s guidance reflects the consultation proposals.
So TPR can scrutinise superfunds ahead of legislation they will need to be satisfied the superfund:
has a viable business model
is financially sustainable
is well governed
has a high probability of being able to pay members’ benefits as they fall due
TPR has also published guidance for trustees considering transferring to a superfund which makes clear the decision must be in the best interests of members. That means it should further the purpose of paying the accrued scheme benefits. TPR also expect employers to seek clearance in respect of any proposed transfer to a superfund, even if they consider any detriment is mitigated.
David Fairs added: "We’ve seen how effective the supervision and authorisation framework has been for driving up standards in defined contribution master trusts, and we fully expect the same protections to exist for DB superfunds from an early stage in this developing market. We will continue to work with government to build legislation."
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