The pensions watchdog has warned that the superfund market needs scale to become a viable endgame option for smaller defined benefit schemes.
David Walmsley, director of trusteeship, administration and DB supervision at The Pensions Regulator (pictured), praised superfunds, especially for what they can offer schemes managing less than £100m of assets.
He wrote in a blog that smaller schemes could benefit from the better governance and greater investment and risk management expertise offered by superfunds.
“We see DB consolidation, whether in a superfund or more conventional master trust, as a positive for ensuring good outcomes for savers in such schemes,” Walmsley wrote.
“But the superfund market needs scale to take on small schemes and we hope the upcoming Pensions Schemes Bill – which will establish a permanent legislative framework for them – will provide impetus for further innovation and expansion.”
The Clara superfund has completed three deals since it was approved by the regulator in late 2023. These deals range in size from £210m for Wates’ retirement fund to £600m for Debenhams’ pension scheme.
But it could have closed more business. Walmsley estimates that around 40% of defined benefit schemes met the threshold for a superfund transfer last year.
And of those, 1,400 had less than £100m of assets, with 900 worth below £25m.
One of the issues with de-risking smaller schemes is that it has traditionally not been financially viable. Greater scale in the superfund market could change this to make such deals more attractive.
But the defined benefit insurance industry is already a step ahead. Just Group secured the benefits of 180 people after completing a £28m buy-in of the pension scheme sponsored by ELG Metals UK in December, which was only confirmed in April.
The buy-in was completed within a month, which Just says is due to its platform streamlining the process. Features include providing real-time pricing.
Others have taken note. Last year, Royal London and Utmost Life and Pensions entered the bulk annuity market as they saw that the sub-£100m deal pipeline was underserved compared to the larger deals.
But superfunds still have much to offer.
Andrew Grime, a partner who leads Aon’s superfund team, said in a statement that schemes can rely on an estimate of buy-out pricing from an actuary with experience of the market, rather than incur the costs of seeking a quote from an insurer.
“We continue to see increasing demand from a wide range of schemes considering whether a superfund transaction will deliver better outcomes for their members and look forward to the additional clarity that legislation and upcoming endgame guidance could bring,” he added.
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