The UK could see its first defined benefit (DB) superfund designed to support run on as early as January next year following provider TPT Retirement Solution’s announcement that is seeking a new consolidation vehicle.
TPT has secured capital to fund the first GBP1 billion of transactions which it anticipates will be sufficient to support a number of deals subject to scale, regulatory approval and market conditions.
The TPT DB superfund will be the first to hold schemes and oversee their investment in the markets rather than targeting buyout with an insurer, which the provider says will “broaden the range of endgame solutions available to employers and trustees”.
TPT’s announcement follows changes announced in the UK government’s Pension Schemes Bill which introduces a permanent regulatory regime for superfunds and superfund bulk transfers.
The changes have been prompted by government’s ambition to drive more pension assets into UK growth assets including infrastructure, real estate and private equity.
With so many DB schemes pursuing a liability-driven investment strategy, the vast majority hold the bulk of their assets in gilts, meaning just 17 per cent of DB pensions holdings are considered productive by the Pensions Policy Institute.
David Lane, Chief Executive of TPT Retirement Solutions, says: “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.”
While TPT is yet to receive assent from The Pensions Regulator, the move into consolidated solutions for DB run on have been widely welcomed by the industry.
Richard Wellard, Head of Alternative Risk Transfer at consultancy Hymans Robertson, says: “This is an exciting development for DB schemes considering their appropriate end game. This differs to other superfund transactions to date, which have acted as a bridge to buyout, so it is good to see the innovation in the development of the superfund market. We expect the prospect of using future surplus for member augmentations will be interesting and appealing to a wide variety of pension schemes. This will also provide healthy competition into the superfund market.”
Wellard added that he anticipated further innovation in this space will continue as “the superfund market goes from strength to strength”.
Speaking more broadly about the reforms in the Pensions Scheme Bill, Ian Mills, Partner and Head of DB Endgame Strategy at Barnett Waddingham, says DB schemes will be liberated from pursuing buyout with an insurer which “ties up excess capital in the financial system for decades”.
“With these reforms excess capital can be released quickly from the financial system into the wider economy, where it can be deployed most efficiently. In addition, removing the inherent asymmetry in the DB pension funding regime will encourage a more balanced approach to risk-taking in DB scheme’s investment strategy – the days of de-risking for the sake of it are over.”
