British pensions provider, TPT retirement solutions, is seeking to launch a defined benefit (DB) superfund, that will hold schemes rather than sell them to an insurance company.
TPT, a mid-sized provider which manages £11.1bn of pension assets, has secured capital to fund the launch of the DB superfund and the first £1bn of transactions, in its attempt to revive a method of consolidation that has met resistance from some financial regulators.
The company estimates that the fund, which also aims to become the first to share profits with members, could grow up to £3bn in the first five years.
Run on schemes
Superfunds allow companies to shake off their pension obligations through transferring liabilities, including promising to pay a certain amount into their employee’s pension, before they hit the funding levels required to sell to an insurer.
TPT’s plans, however, would allow pension schemes to ‘run on’, meaning schemes continue to operate and pay benefits with the goal of being self-sufficient instead of transferring assets over to an insurance provider.
It plans to submit its proposals to the pensions regulator for assessment in January, and the fund will be established with an independent trustee board and full-time executive team.
David Lane, chief executive of TPT, said: “We believe consolidation vehicles such as this provide better outcomes for members.
“They benefit from economies of scale supporting TPR’s ambition for fewer, larger well-run schemes which provide better value for money.”
Superfunds that ‘run on’ also come “with big pools of capital for investment”, leaving them well placed to invest in growth assets.
This put TPT’s proposal in alignment with the “government’s ambitions for economic growth”, according to Lane.
Chancellor Rachel Reeves has previously outlined ambitious plans for UK pension consolidation in the incoming Pension Schemes Bill, in order to tackle the gradual decline in domestic investment from UK pension funds.
This included all multi-employer defined contribution pension schemes and local government pension scheme pools operating at a megafund level, managing at least £25bn in assets by 2030.
Removing administrative burdens
Pension superfunds also allow scheme sponsors, such as employers, to step away from the ongoing costs and administrative burdens that come with running individual schemes.
Pooling individual schemes spreads the risk, by reducing complexity and creating a more effective investment strategy, while allowing experienced fiduciary managers to take control.
Superfunds are also required to hold additional capital over the scheme’s assets, providing a buffer that trustees would not have access to in a standalone scheme.
Nicholas Clapp, chief commercial officer at TPT said: “There is a real opportunity here, and our intention to launch a superfund forms parts of a broader ambition to offer a full suite of consolidation options to schemes to suit their bespoke needs.”