Superfund delays are ‘egregious waste’ of investors’ capital

 

Our chief executive of The Pension SuperFund, Luke Webster has hit out at the government, over its failure to agree a regulatory framework for defined benefit consolidation despite ministers having encouraged the creation of the sector in the first place. Angus Peters wrote in PensionsExpert.com on November 7, 2019, that…

In a submission intended for a since-cancelled Work and Pensions select committee hearing, Luke Webster called the indecision an “egregious waste” of investors’ capital. He urged the government to signal its policy intent before the two start-ups currently in the space burn through more cash.

TPSF and competitor Clara Pensions operate under the pensions regulatory regime, and do not technically need legislation to begin separating schemes from their sponsoring employers.

However, in the absence of dedicated regulations, employers are unlikely to hive off their schemes without clearance from the regulator assuring that they have adequately mitigated risks to members. In turn, the TPSF says the Pensions Regulator’s ability to grant clearance is being hampered by government infighting.

“The obstacles seem to lie within the Treasury, with reservations being stoked by the powerful vested interest of the life insurance lobby,” Mr Webster wrote.

“We have not enjoyed the same level of reciprocal engagement from that department as we have from [the Department for Work and Pensions], TPR and the [Pension Protection Fund], but we understand there is a presumption that insurance is the only endgame and a desire to ensure that, regardless of whether they reduce risk overall, consolidators deliver a level of certainty equivalent to insurance.”

DB consolidators have repeatedly stressed that they do not seek to compete with bulk annuity insurers, and that regulating their capital requirements to the same level as the Solvency II insurance regime would negate the point of their creation.

Instead, TPSF has suggested that it should be required to be constantly funded to 115 per cent of liabilities using a discount rate of 0.25 per cent above the return on gilts. It claims that, for those sponsors who cannot afford insurance but who are able to pass this threshold, superfunds will markedly improve the security of member benefits.

The submission suggested that superfunds could hold additional capital to back early deals, mitigating the risk that first entrants become stranded in a sub- scale offering.

In the letter, Mr Webster reminded the committee of former pensions minister Richard Harrington’s role in encouraging the creation of superfunds, following attempts to find a solution for the troubled British Steel Pension Scheme.

He wrote: “The minister set us the explicit challenge, based on our precedent experience of pooling within the Local Government Pension Scheme, of developing a new consolidator model within the pensions system, for schemes that cannot afford insurance and are sub-scale to be self-sufficient.”

The letter continued: “If the government is intent on doing nothing other than kicking the can down the road for most schemes, and for the very best funded schemes mandating a huge transfer of wealth from pensioners’ savings and companies’ reserves to the shareholders and management of one subset of the financial services industry, then it would be good to know definitively, so we can stop the egregious waste of our investors’ capital, our time and the time and resources of hard-pressed officials and regulators.”