U.K. defined benefit trustees will have to satisfy new requirements set out by The Pensions Regulator before their fund assets can move to consolidators.
TPR published Wednesday guidance on a series of "gateway tests" which trustees must fulfill before they go ahead with moving to DB consolidators, also known as superfunds.
Superfunds are multiemployer plans designed to help plan sponsors offload defined benefit plans and serve as a bridge to a pension risk transfer transaction such as a buyout.
The requirements include asking trustees to first ensure that buyouts are not possible without the outsourcing of their assets to a consolidator and that a buyout will not be available in the foreseeable future. Trustees will be expected to also ensure that a move to a consolidator improves participants' retirement outcomes.
Once the gateway tests are completed, trustees will only be able to consider superfunds named by the regulator on its website. Approvals will be given out individually after consolidators complete an assessment by TPR, looking at the superfund's management and capital backing. A spokesman for the regulator declined to provide the list of consolidators that are currently being evaluated.
TPR said that, while well-run consolidators have the potential to offer good outcomes for participants and employers, they will not be appropriate for all plans. "We know that some employers and trustees are keen to explore whether a superfund could provide another option for their DB scheme and for employers allow them to focus on future sustainability. However, while we await government legislation, we are determined to protect savers who may be moved into a superfund by rigorously assessing providers and then supervising them closely," Nicola Parish, TPR's executive director of frontline regulation, said in a news release.
Industry participants welcomed the regulator's guidance. "The focus on maximizing the likelihood of benefits being paid in full is sensible. We believe that by using these principles, a number of schemes will now approach a transaction with more confidence," Andrew Ward, partner and head of risk transfer and DB journey planning at Mercer, said in an emailed comment.
Gordon Watchorn, partner at Lane, Clark and Peacock, added in a separate emailed comment: "As the guidelines point out, in some cases the comparison with a superfund will be relatively clear cut, especially where the current employer seems unlikely to survive. But there will be many more cases where the decision is more finely balanced and trustees will need to demonstrate they have taken careful advice on the balance of risks associated with different strategies."
Some observers noted challenges that some trustees may face with outsourcing their assets to a consolidator fund. "The guidance itself contains few surprises, with the focus being on the "gateway tests" previously trailed by TPR. If buyout isn't an option, now or in the future, then the focus is rightly on the likelihood of a better outcome for members after transferring to a superfund," Charles Ward, a professional trustee at independent trustee firm Dalriada Trustees, said in an emailed comment.
But smaller plans could have difficulties in accessing advice in a cost-effective way, which could close off this option to them, Mr. Ward said.