The Pensions Regulator (TPR) has issued new guidance to help protect savers and give employers and trustees more choice ahead of Government legislation. The guidance unveils the high bar it expects new superfunds to meet to ensure savers in defined benefit (DB) schemes are protected ahead of Government legislation.
The new guidance, which comes into force immediately, sets out TPR’s expectations for how DB consolidator superfunds and other new models must show they are well-governed, run by fit and proper people and are backed by adequate capital. It also explains how they will be assessed and regulated.
The regulatory regime announced by TPR is interim to ensure clear rules are in place as these models emerge. It ensures that savers and the PPF are protected while providing employers and trustees with more choice during this period of uncertainty caused by COVID-19.
TPR believes DB superfunds have the potential to offer benefits for pension savers and sponsoring employers, such as economies of scale and good governance. However, before a permanent regime is in place, TPR has acted to introduce a stringent set of standards and robust regulatory framework to manage the risks and to ensure that retirement incomes are protected.
This guidance has been long awaited but as Jon Sharp, Director at Western Pension Solutions explains, “Innovation is welcome in the pensions market and we are pleased to see the release of this interim regime and associated guidance by the Pensions Regulator. We feel that it is important for family businesses and their Trustees to work together to find the best solutions both for their businesses and for the support of their pension scheme members.”
Family businesses can expect TPR to request information about four areas to ensure a smooth transition to the legislated framework once it is in place:
- The superfund is capable of being supervised.
- The superfund is run by fit and proper people and has effective governance arrangements in place.
- The superfund is financially sustainable and has adequate contingency plans in place to manage funding level triggers as well as to ensure an orderly exit from the market.
- The superfund has sufficient administrative systems and processes in place to ensure that it is run effectively.
As Jon concludes, “Family businesses are a key part of our economy; the emerging Superfunds market is a new option available to them and their Trustees. Moving to a Defined Benefit Superfund could be helpful for some family businesses to finally resolve their legacy pension schemes issues. This will in turn help them to support their communities with investment and employment in these challenging times. Superfunds provide an opportunity to gain economies of scale, reducing advisory costs and potentially provide additional protection for members through external investment.”
If you are a family business that needs any help with regards your legacy pension scheme or to discuss any of the changes referred to above, please contact us on our free helpline – 0207 726 2718.
