The gateway tests for DB schemes to transfer into superfunds are the ‘main hindrance’ to their success, industry experts have warned.

Speaking at Clara Pensions’ Superfund Summit last week, Pensions UK deputy director of policy and regulation, Joe Dabrowski, stated that “the gateway test is the main hindrance in the Pension Schemes Bill; if we can get some changes during its passage that would be particularly helpful”.

“The other thing is that it would just be gamed otherwise, and we need to just recognise that,” he added.

The Pension Schemes Bill has proposed easements to the DB superfund gateway tests, such as removing gateway test 2, which currently prohibits schemes from transferring into a DB superfund if they have a ‘realistic prospect’ of being able to insure benefits in the ‘foreseeable future’.

Gateway test 1, which prohibits schemes that can afford to buy out from entering a DB superfund, remains, but could be modified by secondary legislation, the bill suggests, while gateway test 3’s requirement that any transfer to a DB superfund is in the members’ best interest remains and cannot be amended by secondary legislation.

“If you could drop the first gateway test detail on the bill, then it suddenly becomes something which is open to all DB schemes,” Hymans Robertson partner, head of pension policy innovation, Calum Cooper, stated at the event.

“Half the market would need to be relatively creative to access DB superfunds, because many are already solvency funded, and that's an untested avenue.”

The Pensions Regulator had estimated that approximately 40 per cent of DB schemes could potentially have met the gateway tests 1 and 2 at the end of 2024. Within the 40 per cent, 1,400 schemes had less than £100m assets, and 900 had less than £25m assets.

Commenting on LinkedIn after the event, former Pensions Minister, Guy Opperman, expressed his support for the suggestion to remove the remaining gateway test, describing it as “the key remaining issue of debate about the bill”.

“It opens up superfunds to all of the market. It would allow solutions for the unloved [and] poorly funded orphans who DWP and TPR presently have no answer for. They are dragging down their corporate sponsors and definitely holding back economic growth and the economy.

"And these are schemes that will never in a million years get to buyout; [they are of] zero interest to insurers. I hope the DWP has a proper look at this and sits down with HMT colleagues in the quiet time after the Commons has finished its consideration of the bill.”

Speaking to Pensions Age, Clara Pensions chief transactions officer, Matt Wilmington, added: “One of the things we need for a thriving superfund market is to ease some of the practical barriers to schemes transacting. Unlike insurance transactions, each superfund transfer currently requires a specific application to the regulator, including an analysis of the gateway tests.

“If these were removed and the responsibility passed back to trustees, we would see even more potential for market growth.”

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