PwC said it has found that up to one million UK pension scheme members could transfer to a “superfund” over the next 10 years in anticipation of new guidance expected soon from the UK’s Pensions Regulator (TPR).
The PwC analysis found that over the next decade about 600 of the around 5,400 defined benefit (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.
This equates to around £170 billion of pension scheme assets or about 10% of the total UK DB pension scheme universe.
Superfunds are pension scheme consolidators, structured as occupational DB pension schemes, governed by their own set of trustees and subject to UK pension legislation.
PwC believes it is likely that several billion pounds of pension assets will transfer to superfunds during 2021 and 2022.
“These initial transactions will predominantly relate to pension schemes whose employers are in distress or already insolvent,” said PwC.
“In these cases, the capital buffer offered by the superfunds is expected to offer a clear improvement to the likelihood of members receiving their benefits in full.
“This is compared to the alternative of the pension scheme entering the Pensions Protection Fund (PPF), which typically results in reductions to member benefits over time.
“But the superfund transactions are unlikely to stop there.
“In estimating the number of pension schemes that could pass the gateway principles, PwC analysis found that future superfund transactions may not just be limited to those pension schemes with weak employers.”
Emma Morton, PwC pensions director, said: “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.”
Stephen Soper, PwC senior pensions adviser, added: “We expect the creation of superfunds to drive further innovation.
“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.”