10% of the UK DB market could transfer to superfunds over the next decade

Up to one million members, representing around £170bn of pension scheme assets or around 10 per cent of the total UK defined benefit (DB) pension scheme universe, could transfer to a superfund over the next 10 years, according to analysis by PwC.

It found that, over the next decade, 600 of the approximately 5,400 DB pension schemes could pass the Department for Work and Pensions’ (DWP) three gateway principles, and be sufficiently well-funded to transfer to a superfund.

PwC also stated that it believes it likely that “several billions” of pension assets will transfer to superfunds in 2021 and 2022.

It predicted that these initial transactions would predominantly relate to schemes whose employer is in distress or already insolvent, noting that the capital buffer offered by the superfunds is expected to offer a “clear improvement” to the likelihood of members receiving their benefits in full.

However, the provider said that superfund transactions are “unlikely to stop there”, noting that future superfund transactions may not be limited to those pension schemes with weak employers.

PwC pensions director, Emma Morton, stated: “As the superfunds grow in scale and build track records of performance, we expect trustees of pension schemes with stronger employers to see the benefit of transferring to a superfund.

“For schemes that have no clear way of securing members’ benefits with an insurance company, but otherwise think that’s the right strategy for them, a superfund could be the next best thing.

“Trustees will need to consider whether a transfer to a superfund would increase the likelihood of members receiving their full benefits.”

Adding to this, PwC senior pensions adviser, Stephen Soper, predicted that the creation of superfunds will also drive further innovation.

He continued: “An obvious alternative structure is one where a scheme transfers to a superfund but retains some employer covenant link.

“We also expect that some well-funded pension schemes will set up their own capital buffer in a similar way to superfunds to support a scheme run-off structure with a contingency for sponsor insolvency.”

The analysis follows the recent news that The Pensions Regulator is to publish further guidance to pensions schemes considering transferring to a DB superfund next week, following the introduction of an interim regime by the regulator.

The Pensions Minister, Guy Opperman, has also confirmed this week that he expects there to be a further pensions bill in the current parliament, which would constitute superfunds legislation.

    Share Story:

Recent Stories


Sovereign bonds and climate change considerations
In Pensions Age's latest podcast, Laura Blows is joined by Hilary Norris, Product Manager, Sustainable Investment, EMEA, FTSE Russell, to discuss sovereign bonds and climate change considerations

Climate Investing
Laura Blows speaks to Aled Jones, Head of Sustainable Investing for Europe at FTSE Russell, and Adam Matthews, Director of Ethics and Engagement for the Church of England Pensions Board, about the role of climate investing within a pension fund portfolio.

Managing volatility
In the latest Pensions Age podcast, Laura Blows speaks to Cambridge Associates head of European pension practice, Alex Koriath, about the Covid-related market volatility and how pension funds can prepare for the challenges ahead

Risk transfer opportunities
Laura Blows speaks to Lisa Purdy, Head of Fiduciary Distribution at Legal & General Investment Management and Gavin Smith, Pricing and Execution Director - UK PRT at Legal & General, about the impact of the recent market volatility on the bulk annuity and risk transfer market and the potential opportunities for the future

De-risking options for pension schemes
In this latest Pensions Age podcast, Linklaters' Sarah Parkin talks to Laura Blows about the wide range of choice available to pensions schemes for the partial, or full, removal of their risks

Advertisement