The legal issues that trustees and employers need to consider in relation to defined benefit (DB) superfunds need to be given more attention, Freshfields Bruckhaus Deringer has warned.

A blog post penned by Freshfields partners, Andrew Murphy, Dawn Heath, and Charles Magoffin, pointed out that, in order for initial transactions to successfully take place, it must be considered “whether the superfund route is an appropriate end-game for the transferring plan from a trustee duty and employer duty of good faith perspective”.

It added that trustees and employers should also examine structural factors, such as investor contribution commitments, models for the return of capital to shareholders and the potential segregated status of particular superfunds.

The post also stated that the implications of transferring to a superfund from the perspective of TPR’s moral hazard powers and other residual risks should be considered.

A briefing released by Freshfields in July also highlighted the impact of transactions on member benefits and legal risks associated with member communications and any member consultation related to the transaction as further legal issues that ought to be considered.

The Freshfields partners noted that a great deal of the market commentary regarding superfunds had concerned governance and service requirements or capital and funding requirements, rather than legal aspects.

The blog post stated: “We expect that superfunds will continue to face challenges as they begin to do business in earnest.

“However, despite the risks of going into uncharted territory, we believe these developments open up a wider range of opportunities for many plan trustees and employers to potentially secure member benefits at an affordable price and within a foreseeable timeframe.”

The Pensions Regulator published its interim regulatory regime for prospective defined benefit (DB) pension consolidation vehicles in June, with the aim of ensuring that savers in DB schemes that move to superfunds are protected in the period prior to government legislation being passed.

Survey data released by Willis Towers Watson in July showed that one in ten (11 per cent) of UK DB pension schemes had discussed superfunds as an option for their target end-game.

Share Story: