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Pension Funds

52% of U.K. pension professionals think multiemployer superfunds will be commonplace – survey

Consolidating defined benefit funds into multiemployer arrangements, known as superfunds, will become a commonplace solution for some U.K. plan sponsors, according to 52% of respondents to a survey by specialist advisory firm Lincoln Pensions, a subsidiary of Cardano Group.

However, in a separate question, even though 46% recognized consolidation as a potential endgame for funds that they might consider in the future, just 11% of the 140 respondents, which included 66 pension trustees, are currently considering this option. The other 74 respondents are defined broadly as pension professionals.

The survey, in its first year, also found that any future U.K. superfund legislation should focus on the covenant — the plan sponsor's obligation to deliver pension benefits.

The U.K. government is currently consulting the retirement industry about how it should facilitate a consolidation of corporate defined benefit funds in the legislation.

Some 60% of the surveyed pension professionals said superfund legislation should focus on ensuring that the superfund covenant is stronger than the employer covenant available to the transferring pension fund. Only 14% of respondents appear to support the regulatory approach proposed by the U.K. government, which is based on targeting a 99% probability of meeting full benefits.

Some 21% stated that all superfunds should target the same minimum level of covenant strength, which is defined as the capital in excess of the insurance buyout cost. According to three-quarters of respondents, plan sponsors receiving covenant advice from external regulated providers should also be mandatory.

"Any new regulatory regime must focus on ensuring that 'superfund' (or similar transactions) deliver genuine covenant improvement," said Darren Redmayne, CEO of Lincoln Pensions, in a news release.

The survey was conducted between Dec. 13 and Jan. 16.