Superfund Consolidators for Defined Benefit (DB) Pensions

Superfund Consolidators (the “Superfunds”) are a new innovation in the UK pension industry. Transferring a defined benefit (DB) pension scheme to a Superfund can improve the security of members’ benefits by replacing a weak employer covenant with a capital buffer.

Superfunds could allow the companies who sponsor DB pension schemes to transfer pension obligations to Superfunds, removing any future obligation to fund pension liabilities. To transfer to a Superfund, sponsoring companies need to obtain clearance from the Pensions Regulator in the UK and demonstrate that the transaction meets the Regulator’s ‘Gateway Principles’.

The key benefits of Superfunds are:

scheme members ultimately benefiting from enhanced security of their pensions - the capital buffer deployed reduces the risk of pensions not being paid; especially where insuring these obligations is unaffordable and the employer covenant is weak or unreliable
consolidated assets and liabilities of multiple pension schemes to generate economies of scale, leading to improvements in governance, the ability to source suitable assets and efficiencies in running costs
removal of the sponsoring company’s obligation to fund the pension liabilities, reducing future costs and risks to the sponsor

The key benefits above will depend on the precise transaction structure and are the key drivers for Superfunds innovation.

As Superfunds are a new innovation in DB pensions, trustees and sponsor companies will want to carefully consider how they compare to other solutions available in the market. Some key areas they may want to assess include:

Does the solution enhance member outcomes?
What are the residual risks to trustees and sponsors?
What are the costs and complexities associated with the solution?

PwC’s approach to pension risk transfer is holistic, working collaboratively with trustees and sponsors to provide independent and unbiased support. We can help you assess the full range of pension scheme funding and de-risking solutions.

PwC has in-depth knowledge of Superfund providers, their respective offerings and the requirements of the Pensions Regulator’s guidance in respect of these solutions. These transactions are likely to require a wide range of expertise that a multidisciplinary firm like PwC can offer to our clients.

For trustees and/or sponsoring companies considering Superfunds, our multidisciplinary team can support in any of the following areas:

Assessing the eligibility based on the Pensions Regulator’s Gateway Principles including the sponsoring covenant and whether a transfer to a Superfund will improve the security of members’ benefits
Deriving and negotiating scheme specific pricing based on the strategy and structure of Superfund providers
Getting the pension scheme into a transaction ready state through data cleansing, preparing benefit specification and member communication
Due diligence on the Superfund provider and negotiating commercial terms with the Superfund
Transaction execution including covenant and legal advice in respect of the transaction
Preparing regulatory clearance applications
Communication to members and other stakeholders including shareholders and lenders on the corporate side

PwC’s highly pragmatic and commercial approach to executing the right transaction helps to enhance the security of pension scheme members while overcoming cost and structural challenges for the trustees and corporate sponsors.

Our multidisciplinary pensions practice brings together a range of expertise including covenant and pensions regulatory know-how via our dedicated covenant team.