TPR and ABI enter debate on PLSA’s superfunds plan

The Pensions Regulator (TPR) says it is looking forward to discussing how to help schemes consolidate, following the Pension and Lifetime Savings Association’s publication today of a radical plan to bring struggling schemes into superfunds.

But the Association of British Insurers has challenged the PLSA DB taskforce proposal, demanding that any superfund should be subject to the same Solvency II capital adequacy requirements as insurance companies.

TPR remains adamant that between 85 and 90 per cent of schemes are sufficiently financially resilient to manage their deficits.

A spokesperson for TPR says: “While some defined benefit (DB) schemes are facing significant challenges, as highlighted in the PLSA’s report, over the longer term, most will be able to pay members their promised benefits. Our Annual Funding Statement for 2017 showed that 85 to 90 per cent of schemes currently preparing their valuations have employers with sufficient financial resilience to be able to afford to manage their deficits, and don’t have a long term sustainability challenge.

“However, we are clear that while the majority of DB schemes remain affordable, many should do more to tackle increased deficits and reduce risk to pensioners. We are prepared to use our powers where employers and trustees fail to tackle problems.

“We will continue to engage in discussions with government and industry in the months to come, including on how scheme consolidation can help protect member outcomes.”

ABI head of retirement policy Rob Yuille says: “The majority of UK DB schemes are well-run and well-funded, but reforms are needed to improve the system for employers, schemes and members alike. Insurers already play a critical role in the DB pensions sector, with eight firms currently competing in a competitive UK risk-transfer market, which has appetite for schemes and transactions of all sizes. Our latest figures show that insurers have taken on responsibility to pay out the benefits of 1.2 million members of defined benefit schemes.

“The PLSA’s DB taskforce proposes some important reforms and we look forward to seeing further details about the recommendations. In particular, further clarity is needed on the proposal to create superfunds, specifically how they would be regulated. Superfund members should be afforded the same level of protection and peace of mind that is already given to insurance customers by the Solvency II rules, so that there is a level playing field and it is clear who bears the risk of paying the benefits.”

JLT Employee Benefits head of technical John Wilson says: “We welcome this contribution to the DB ‘black hole’ debate. In particular, we support benefit simplification as a realistic option for addressing pension scheme deficits. As the PLSA says, unless something is done, many schemes will end up in the PPF and members’ benefits will be reduced – potentially by around 25 per cent. However, the PLSA has much work to do in terms of winning over hearts and minds in relation to their ‘superfund’ proposal.

“The new chair’s statement for DB scheme trustees is a reasonable idea, but of much more use for member would be a requirement for trustees to be more transparent to members about the risks attaching to their benefits, e.g. better disclosure on solvency position and commentary on the amount of support that the pension scheme is relying on from the employer.

“Proposals to exchange covenants for funding are more controversial. There will be concerns over security of members’ benefits and scepticism that this will just end up being reduction of benefits ‘through the back door’. There are also the issues of regulation and the ability to offer a cheap form of buy out without the reporting and reserving that applies to insurers.”