Pension risk transfer insights: The bar has been set for superfund transfers

Following recent guidance for superfunds, The Pensions Regulator (“TPR”) has set out detailed guidance for trustees and sponsors considering transferring to superfunds ahead of a longer-term authorisation regime.

On 21 October 2020, TPR issued detailed guidance setting out its expectations of trustees and sponsors considering transferring their scheme to a superfund. We summarise the key points from the guidance in our insights document:

• The gateway test
  
  
• The process of transferring
  
  
• The role of trustees and sponsor

Our thoughts on the guidance

We are pleased to see the revised guidance for trustees and employers providing further clarity on TPR’s expectations. The groundwork has now been laid for the first transfers to occur ahead of a formal legislative regime, and perhaps just in time given the potential wave of corporate insolvencies in 2021. We feel superfunds should be able to play an important role in securing more DB benefits and reducing the risk on the PPF, therefore consolidation into superfunds should be encouraged.

What comes next?

Superfunds are working hard to pass TPR’s assessment process, which confirms they comply with TPR’s guidance for the interim regime. Only then will TPR begin considering clearance applications for individual transactions.

While there are a number of schemes in advanced discussions with the superfunds, the need for providers to be assessed, and for individual transactions to then obtain clearance, means it may be some time before the first transactions occur.

Only time will tell what these first transactions will look like but, in our view, it remains the case that early transactions need a “burning platform” making it in members’ best interests to transact now rather than waiting for the longer-term authorisation regime which may still be some years away. This burning platform could take a variety of forms but, given the current economic climate as a result of COVID-19, it is likely that struggling sponsors and corporate insolvencies may be the primary driver for consolidation activity.

If you have any questions about anything covered, please don’t hesitate to get in touch.