Govt outlines regulatory approach for DB consolidation

A new legislative and regulatory regime requiring defined benefit superfunds to be authorised will be put in place under new plans announced by the government today, 7 December.

Launching its consultation on the Consolidation of Defined Benefit Pension Schemes, the Department for Work and Pensions said that superfunds will “transform” DB pension schemes once the right protections have been put in place.

The DWP added that it plans to beef up the powers of The Pensions Regulator, subjecting superfund trustees to a rigorous fit and proper person test and ensuring they are “proactively regulated”.

Commenting on the launch, Pensions Minister, Guy Opperman, said: “Well-run superfunds have great potential to deliver more secure retirement incomes for workers while allowing employers to concentrate on what they do best – running their businesses.

“We’re clear there needs to be proper regulation, and we’re consulting to ensure we get that right. We’re transforming pensions saving in this country through our radical reforms, and this is yet another innovation which will improve retirement prospects.”

The DWP said that in developing the consultation proposals it looked into the authorisation regimes such as the DC master trusts and the Prudential Regulation Authority authorised firms.

The government has also proposed an “application fee” to cover TPR’s authorisation costs.

Commenting on the consolidation, The Pensions Superfund CEO Luke Webster said it was a positive step forward.

“There is nothing in the guidance that is incompatible with our initial transaction and, having successfully agreed commercial terms with the sponsor and trustees, we can move to submitting this first transaction for regulatory clearance,” he said.

“Our proposal will greatly improve the funding of that scheme, whilst also giving its members the opportunity to participate in any future surplus over and above the buffer funding we will maintain.”

According to the consultation, trustees will decide on whether to take the scheme into the superfund, after “seeing evidence that members benefits are better protected”, and will also be required to notify TPR “at the earliest opportunity”.

A new bespoke pension framework will also be developed to manage the new risks and ensure financial sustainability of the new schemes.

Aon head of UK retirement policy, Matthew Arends, said: “The DWP’s consultation brings much-needed clarity on the direction of travel that the DWP anticipates for these new consolidation vehicles.

“Having said that, in a number of key areas, the DWP has put forward several options for the future, which means there remains considerable uncertainty over the regime under which consolidators will operate. This in turn will make transactions difficult in the short term.”

In September, The Pensions Superfund is in talks with a dozen “well established” conversations with pensions schemes over the possibility of moving into the consolidation vehicle.

Legislation is expected next summer, meaning it could be up to two years before a pension bill, which will include a new superfund framework and a new regulatory approach, comes into force.

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