One million pension scheme members could move to superfunds, says PwC

Up to one million pension scheme members could transfer to superfunds in the next decade, according to PwC, ahead of new guidance expected soon from the Pensions Regulator (TPR).

Research carried out by the firm revealed that about 600 of the around 5,400 defined benefit (DB) pension schemes could pass the Department of Work and Pensions’ (DWP) three ‘gateway principles’ and be sufficiently well funded to transfer to a superfund over the next ten years.

This equates to around £170bn of pension scheme assets or about 10% of the total UK DB pension scheme universe.

Emma Morton, PwC’s pensions director, said: “As the superfunds grow in scale and build track records of performance, we expect trustees of pension schemes with stronger employers to see the benefit of transferring to a superfund.

“For schemes that have no clear way of securing members’ benefits with an insurance company, but otherwise think that’s the right strategy for them, a superfund could be the next best thing. Trustees will need to consider whether a transfer to a superfund would increase the likelihood of members receiving their full benefits.”

She added: “To transfer to a superfund, trustees will need to demonstrate that the gateway principles have been met by showing that the scheme cannot afford to buy out now and has no realistic prospect of being able to do so in the foreseeable future. 

“The superfund must also improve the likelihood of members receiving full benefits.”

Stephen Soper, senior pensions adviser at the PwC, said: “We expect the creation of superfunds to drive further innovation. An obvious alternative structure is one where a scheme transfers to a superfund but retains some employer covenant link. 

“We also expect that some well-funded pension schemes will set up their own capital buffer in a similar way to superfunds to support a scheme run-off structure with a contingency for sponsor insolvency.”

He added: “TPR’s guidance is arriving around 18 months after the DWP consultation on DB pension consolidation. It will be used in an interim period before a new authorisation and supervision legislative framework is put in place to cover superfund transactions. 

“DWP is currently working to establish new legislation to govern superfunds which is expected to emerge in the current parliament.”