“The Bill has taken on the tricky task of defining what is and what isn’t a Superfund. And has done what looks like a pretty good job. With Superfunds subject to higher regulatory oversight that other pension schemes, what is and what isn’t a Superfund is naturally going to come under a lot of scrutiny from the industry. One potential crease in the definition might come if it is possible to turn an existing pension scheme into something that looks and smells like a Superfund, but doesn’t have to meet Superfund regulations because it never received a transfer in. Time will tell whether that type of situation engineering provides any value.
“A framework for Superfunds was what was expected from the Pension Schemes Bill, and a framework is what was received, concludes Hymans Robertson. A day after the bill was released the firm analyses the key points impacting the Superfund market. From review, it is clear that secondary legislation will be required to set out all the key numbers, define important things like ‘very high likelihood’ or ‘material likelihood’, and fundamentally dictate the commercial outlook for any Superfund thinking about operating once the Pensions Schemes Bill is in force.”
Even without the clarity of secondary legislation, however, there are some interesting points in the Bill.
• Gateway test 1: the rule that schemes that can afford to buy-out member's core benefits are prohibited from transferring into a Superfund, remains, but can be modified by secondary legislation. That is an interesting flexibility as there are scenarios where this gateway test stops Trustees acting in the best interests of their members.
• The Bill helpfully removes the ambiguous gateway test 2 that currently prohibits schemes from transferring into a Superfund if they have a "realistic prospect" of being able to insure benefits in the "foreseeable future". It is good to see the recognition that the need for this test in the first place was about as unclear as its interpretation.
• Gateway test 3: the very important one about any transfer to a Superfund being in members’ best interest, also remains, and is set in stone so that it cannot be touched by secondary legislation. We see this as the most important test for Superfund transfers and very much welcome this clarity
• There are possible early signs of relaxing capital requirements, with the capital adequacy test for assessing risk in a Superfund being positioned to move from a 5-year horizon to a one year horizon (although this can be changed by secondary legislation). This is a good sign for the Superfund market, and will help address the fact that superfund pricing has turned out to be much closer to buy-out pricing than The Pensions Regulator expected when setting up the interim regime.
• Powers to get tough on individuals. With civil penalties, and imprisonment becoming a consequence of inappropriate actions around the operation of a Superfund or pretending to be a Superfund. It is clearly good to enforce accountability into a system that can impact individuals’ pensions.
• A focus on The Pensions Regulator having scrutiny on individuals with significant influence within the Superfund and specifically approving individuals that can be trustees of a Superfund. How The Pensions Regulator goes about this approval process, will influence the level of operational burden this places on them and Superfunds.
• The Pensions Regulator now has a time limit on deciding on an application for a new Superfund. An expectation of 6 months, but a limit of 9 months. This is not a particularly quick turnaround time, given the likely interaction with The Pensions Regulator before the application is submitted, but a time limit is welcome nonetheless.
• Schemes with active members are now prohibited from transfers to a Superfund.
Concluding, Richard says: “Overall, we are pleased to see the dial move on Superfunds and welcome the announcement from this government, and the Pensions Schemes Bill, to take this seismic shift forward for the future of pensions.”
|
