Regulatory direction for superfunds can ease risk transfer capacity crunch

How updated guidance can offer a secondary route for schemes

Regulatory direction for superfunds can ease risk transfer capacity crunch

Broadstone, an employee benefit and actuarial consultant firm, recently said that the new regulatory directions for superfunds may be able to ease the risk transfer capacity crunch, as reported in an article by Professional Pensions.

"Superfunds have long been the talk of the market and it appears that the government and regulator's direction of travel is positive in this regard.” said Chris Rice, Broadstone’s head of trustee services.

“For smaller schemes, the timing could well be perfect as insurers look to use their available resources in winning the larger, more commercially attractive schemes first in a buyer's market.”

The Pensions Regulator (TPR) had reportedly updated the superfunds guidance last week. Louise Davey, the TPR interim director of regulatory policy, analysis, and advice, welcomed the intention of the Department for Work and Pensions (DWP) to develop a new regime for superfunds. However, Davey also announced changes in several areas of the guidance for superfunds.

In a blog post, it was explained that the changes included the extension of the gateway period for transferring to a superfund, changing the expectations for funding to gilts+0.75% from gilts+0.5%, as well as giving more clarity regarding the process of assessment and an upcoming change regarding profit extraction.

Rice also mentioned that the gateway tests have made it easy for a superfund transaction to come into fruition.

“Schemes that can demonstrate that the market isn't willing to do business with them can now consider the superfund route.” said Rice.

“As demand continues to increase, if the capacity to transfer risk does not follow suit, smaller schemes could be left facing a capacity crunch, struggling to obtain timely and competitive quotations.” he explained further.

With this updated guidance, Broadstone believed that this will offer a secondary route for schemes that may face difficulty in accessing the market as the improving funding levels have been causing varying sizes of schemes to make an attempt to approach the market.

Rice said that there is a need to gain more clarity regarding the gateway tests in order for trustees to be confident that a superfund transfer is possible within the guidance.

“Superfund entry is, in any case, likely to provide a potential path to buyout and if this helps to ease the process while maintaining member security it has to be good news."