Pensions - Articles - Will new superfund guidance set too high a hurdle

 By Sam Jenkins, Partner at LCP

 A key point of focus for TPR to date has been on whether a scheme has the ability to reach buyout within the “foreseeable future” within its “gateway” tests. Those that can may be deemed not appropriate for a superfund.

  

 Whilst it is clearly important that buyout remains the ultimate target for schemes that can reach it, there is a risk that a too stringent a test will make it all but impossible for schemes to pass it. It also risks encouraging trustees to feel safer in the status quo than they perhaps should – covenant risks over short periods are often far higher than perceived - with the ultimate detriment being to member benefits if those schemes that would benefit from a transfer are not able to meet TPR’s gateway tests.

  

 Help or hinder?

 There is no doubt that TPR has a difficult balancing act to achieve in its guidance. However the guidance needs to assist the trustees of ceding schemes as well as not impeding viable superfund transfers. Although a superfund is clearly not appropriate for all schemes, where there is a demonstrable benefit to a scheme and its members we hope the tests in the guidance do not set too high a hurdle. If they do, they risk impeding transfers that are ultimately in members’ (and struggling sponsors’) interests. Get it right and there will be better outcomes for sponsors (who may be able to revive their business without being encumbered their pension scheme) and members (who will be more likely to receive their benefits in full).

  

 Market trajectory for 2021?

 Alongside this updated guidance, the first superfund transfer is expected to be the key to finally unlock this new market. There will be some nervousness from first movers, but with some clear guidance from TPR and the first proven cases transacting, we expect market interest to pick up as we move into 2021. With Covid-19 impacting the financial strength of many scheme sponsors, a superfund option feels more essential now than ever.