TPT Retirement Solutions (TPT), one of the UK’s leading workplace pensions providers, has announced its intention to launch a new Defined Benefit (DB) superfund designed to support run-on.
Both The Pensions Regulator (TPR) and the Department for Work and Pensions (DWP) have expressed their support for superfunds, which offer schemes an alternative endgame solution. Superfunds are designed to take on the obligation of meeting the liabilities of corporate DB pension schemes from their original sponsors. They are particularly suitable for schemes that don’t have large surplus funding positions and cannot afford alternatives such as a full buy out with an insurer.
Currently, there is only one superfund that has been assessed by TPR in the UK market, and it targets buyout as its end goal. TPT’s superfund proposition, designed to run-on, will broaden the range of endgame solutions available to employers and trustees. TPT has secured capital to fund the first £1bn of transactions, which it anticipates will be sufficient to support a number of deals subject to scale, regulatory approval and market conditions.
Addressing gaps in the DB market
Pension superfunds present a huge opportunity for choice in the broader consolidation market. With many schemes experiencing improved funding levels over recent years, superfunds represent a viable route for those schemes that still fall short of full funding on a buy-out basis. Currently, 4 in 5 UK DB schemes are in surplus with an aggregate funding level of 120% on a technical provisions basis. Superfunds that run-on are well placed to invest in growth assets, supporting the Government’s ambitions for the UK economy.
TPT has developed its new superfund with members’ interests at the core. Its focus will be to increase the likelihood that members receive full benefits, with distributions to members from the surplus from year five onwards, increasing to the majority of the surplus once the risk capital has been returned to the investor.
Reducing trustee and sponsor burden
By pooling schemes together, spreading the risk and putting experienced fiduciary managers at the helm, pension superfunds allow sponsors to step away from the ongoing costs and administrative burden involved with running individual schemes.
Superfunds are required to hold additional capital over and above the scheme’s assets, to provide a buffer that trustees would not have access to in a standalone scheme. Once a scheme transfers to a superfund, responsibility for the scheme no longer sits with the ceding trustee, and reliance on the employer covenant falls away. The intent is to ensure an increased likelihood that members receive full benefits. TPT’s superfund will be established with an independent Trustee Board and full-time executive team.
Part of a broader consolidation strategy
TPT’s planned superfund follows the May announcement of its intention to develop a multi-employer CDC proposition, and the recent launch of its DC income-for-life proposition. Pending regulatory authorisations, TPT will have six different consolidation vehicles, making it a clear industry leader and standout pioneer of pension solution development. TPR has outlined clear guidance on DB superfunds, giving trustees confidence in the due diligence process.
Nicholas Clapp, Chief Commercial Officer at TPT Retirement Solutions, said:
“We’re very excited to announce our plans to launch a superfund that targets run on rather than a bridge to buy out. There is a real opportunity here, and our intention to launch a superfund forms part of a broader ambition to offer a full suite of consolidation options to schemes to suit their bespoke needs.”
David Lane, Chief Executive of TPT Retirement Solutions, said:
“At TPT, we believe consolidation vehicles such as this provide better outcomes for members. They benefit from economies of scale supporting TPR’s ambitions for fewer, larger, well-run schemes which provide better value for money. By design, superfunds also come with big pools of capital for investment – the creation of which aligns closely with the Government’s ambitions for economic growth.”
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