The Pensions Regulator (TPR) has unveiled guidance it expects new 'superfunds' to meet to ensure savers in defined benefit (DB) schemes are protected ahead of Government legislation. 

However, the Association of British Insurers (ABI) said the guidance was light-touch, short on detail, and is limited in power.

The new guidance came into force immediately and sets out TPR’s expectations for how DB consolidator 'superfunds' and other new models must show they are governed, run properly, and are backed by adequate capital. It also explained how they will be assessed and regulated.

Superfunds are consolidated funds that manage money for several DB schemes, potentially pooling funds to keep costs down.

The guidance aims to ensure that savers and the PPF are protected while providing employers and trustees with more choice during the Covid-19 pandemic.

However, the ABI has criticised the interim regime and called for tougher legislation from government as soon as possible.

Yvonne Braun, director of long-term saving and protection at the Association of British Insurers, said: “Despite being two years in the making, the interim regime is light-touch, short on detail, has only limited powers for the regulator and risks pension savers being sold down the river.

“It is difficult to see how trustees will feel comfortable that their scheme members will be in safe hands if transferred to a “Superfund”. Members of Defined Benefit pension schemes have been carefully saving for retirement, and rightly expect any for-profit organisation to protect their money and be subject to rigorous regulation and supervision. This guidance puts this at risk.

“The temporary fix could prevent the worst excesses in the market as the economic impact of Covid-19 starts to bite, but it is a poor alternative to much needed legislation. Tougher new laws will help ensure that workers have the high level of protection they expect for their pension.”

TPR said DB superfunds have the potential to offer benefits for pension savers and sponsoring employers, such as economies of scale and good governance.

The regulator said trustees need to be certain that a transfer to a superfund is in their members’ interests. They should also only consider using a superfund or new business model once TPR has completed its assessment. TPR said it will be providing more information for trustees and employers in the coming months.

Capital adequacy is among the most important areas of TPR’s interim regime as under the superfund model for DB schemes there will be no employer covenant.

TPR will require superfunds to hold sufficient assets to meet the promises to savers with a high degree of certainty. This will include the requirement for the scheme’s liabilities (technical provisions, or TPs) to be calculated using specific assumptions set out in TPR’s guidance and for additional assets to be held in a capital buffer.

Minister for Pensions Guy Opperman said: "The publication of today's interim regime for DB superfunds is a big step towards a healthier and stronger pensions landscape.

"Well-run superfunds have the potential to deliver more secure retirement incomes for workers, while allowing employers to concentrate on what they do best – running their businesses.

"I look forward to learning from the experiences from the interim regime, which will provide valuable insights as we develop and finalise our plans for a longer term legislative solution."