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Pension scheme consolidation vehicles: superfunds

Momentum has been building around the potential use of pension scheme consolidation vehicles – colloquially known as superfunds.

Offering scale economies through scheme consolidation, these vehicles typically seek to improve the likelihood of members’ benefits being paid at a price lower than an insurance-based “buyout” structure.

Simplistically, they look to enhance schemes and their ability to meet members’ benefits through a combination of absorbing the scheme assets and liabilities together with, typically, an additional cash contribution; the provision of their own capital to act as a basis for generating investment returns; and scale economies in administration and other functions.

The business models of consolidation vehicles do vary – for example, between a sectionalised and aggregated approach.

Trustees and employers considering the use of superfunds need a range of specialist advice before concluding that placing a scheme into a superfund is the right decision on the right terms. In December 2018, the Department for Work and Pensions (DWP) outlined proposed regulatory considerations that should apply to the use of superfunds. These include the need for an independent covenant assessment under a gateway procedure. The DWP wishes to ensure that superfunds offer a 99% chance that members’ benefits will be paid in full.

The DWP position should be seen alongside relevant guidance from The Pension Regulator (TPR).

We can advise both trustees and employers on possible options for entering superfunds – including comparative analysis between different options (such as remaining with an existing employer or moving straight to a buyout structure). In doing so, we can evaluate the covenant position for the purpose of the gateway, and provide the necessary actuarial calculations and comparative bulk annuity pricing to facilitate a clear options analysis.

Partner, Head of Pensions Advisory Services

Paul Brice

+44 (0)20 7728 3423

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