Superfunds have been given the go-ahead by The Pensions Regulator, with a set of "stringent" rules in place, including the requirement for these consolidator funds to hold additional assets as a capital buffer.
TPR revealed an interim regulatory regime Thursday, outlining its expectations for how corporate defined benefit funds that have been consolidated into so-called superfunds and other models will be run, assessed and regulated.
The interim rules have been put in place to help those setting up and running a DB superfund ahead of any specific legislation. The government is working on a permanent set of rules, TPR added. A spokesman for the Department for Work and Pensions could not immediately be reached for comment.
The regulatory guidance, which is effective immediately, sets a "high bar" and requires superfunds and others to show they are well-governed, run by "fit and proper people" and have adequate capital backing. The capital adequacy of a superfund is one of the most important parts of the interim regime, since a superfund does not have an employer covenant — a measure of the ability of an employer to fulfill its financial promises to a pension fund. Therefore, superfunds will need to hold sufficient assets to meet pension promises "with a high degree of certainty" and have additional assets in a capital buffer.
TPR acted to "introduce a stringent set of standards and robust regulatory framework to manage the risks and to ensure that retirement incomes are protected" as new models and consolidators emerge, it said in a statement accompanying the rules.
These superfunds could offer benefits for participants and sponsoring employers, including economies of scale and good governance, TPR added. Trustees should only consider using a superfund or other consolidator model once TPR has completed an assessment of the individual superfund or consolidator model.
"Our priority is the protection of savers," TPR CEO Charles Counsell said in the statement. "In line with our clear, quick and tough approach, we are setting out now how our interim regime will assess and regulate superfunds, including new models, so there can be no doubt about the standards we expect before the government's permanent authorization regime comes into force."
Mr. Counsell added that the regulator had "taken bold action now to ensure that the market develops in the best interests of savers, particularly as the impact of the COVID-19 crisis may prompt some sponsoring employers and pension trustees to consider what they can do to meet defined benefit pension promises in the future."
TPR added that any organization planning on setting up a superfund should contact the regulator before launching.
The regulator will provide further information for trustees and sponsoring employers in the coming months.