TPT Retirement Solutions (TPT), the UK workplace pensions provider, is to launch a new defined benefit (DB) superfund designed to support run-on.
Both The Pensions Regulator (TPR) and the Department for Work and Pensions (DWP) have expressed their support for superfunds, which offer schemes an alternative endgame solution.
Superfunds are designed to take on the obligation of meeting the liabilities of corporate DB pension schemes from their original sponsors.
They are particularly suitable for schemes that don’t have large surplus funding positions and cannot afford alternatives such as a full buy out with an insurer.
Currently, there is only one superfund that has been assessed by TPR in the UK market, and it targets buy out as its end goal.
TPT’s superfund proposition, designed to run-on, will broaden the range of endgame solutions available to employers and trustees.
TPT has secured capital to fund the first £1bn of transactions which it anticipates will be sufficient to support a number of deals subject to scale, regulatory approval and market conditions.
Pension superfunds present a huge opportunity for choice in the broader consolidation market. With many schemes experiencing improved funding levels over recent years, superfunds represent a viable route for those schemes that still fall short of full funding on a buy out basis.
Currently, four in five UK DB schemes are in surplus with an aggregate funding level of 120% on a technical provisions basis.
Superfunds that run-on are well placed to invest in growth assets, supporting the government’s ambitions for the UK economy.
TPT has developed its new superfund with members’ interests at the core.
Its focus will be to increase the likelihood that members receive full benefits, with distributions to members from the surplus from year five onwards, increasing to majority of surplus once the risk capital has been returned to the investor.
By pooling schemes together, spreading the risk and putting experienced fiduciary managers at the helm, pension superfunds aim to allow sponsors to step away from the ongoing costs and administrative burden involved with running individual schemes.
Superfunds are required to hold additional capital over and above the scheme’s assets, to provide a buffer that trustees would not have access to in a standalone scheme.
Once a scheme transfers to a superfund, responsibility for the scheme no longer sits with the ceding trustee and reliance on the employer covenant falls away.
The intent is to ensure an increased likelihood that members receive full benefits. TPT’s superfund will be established with an independent trustee board and full-time executive team.
Richard Wellard, head of alternative risk transfer at Hymans Robertson, said: “This is an exciting development for DB schemes considering their appropriate end game. It offers schemes further choice in finding the endgame that best aligns with their objectives.”
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