Our industry survey finds that Superfunds will become a commonplace solution for some DB schemes

Our DB consolidation survey found that over half of pensions professionals believe Superfunds will become a commonplace solution for certain UK DB schemes.

Pensions professionals also believe that Superfund regulation should focus on relative covenant strength.

On the survey findings, Darren Redmayne, CEO of Lincoln Pensions, said: “Our inaugural DB consolidation survey reveals unsurprisingly that the security of members’ benefits – or covenant – is rightly at the heart of any decision to “switch covenant” [from sponsor to consolidator]. Any new regulatory regime must focus on ensuring that ‘superfunds’ [or similar transactions] deliver genuine covenant improvement. Our survey highlights a concern in the pensions industry that stakeholders will place too much emphasis on probability models to answer the hugely complex question regarding whether the covenant of a consolidator is better. While such modelling will likely play a role in the “covenant test” for consolidation transactions, we believe it is only one element of a multi-faceted and complex assessment on whether or not to proceed with a consolidation transaction.”

Stats from the survey:

  • 52% of pension professionals think Superfunds will become more commonplace in the future for at least certain schemes, but only 11% are willing to be early adopters
  • 60% of pension professionals recognise that Superfund regulation should focus on ensuring that the Superfund covenant is stronger than the employer covenant available to the transferring pension scheme, while only 14% of pension professionals appear to support the regulatory approach that is currently being consulted on and which targets a minimum probability of success
  • 52% of pension professionals expect DB consolidation to become commonplace for certain types of scheme, while 35% think that it will become a highly unusual approach applicable to only a very small number of schemes.
  • While 46% of respondents recognise consolidation as a potential endgame that they might consider in the future, just 11% of respondents are currently considering this option.

What the industry thinks about Superfunds can be viewed in our full DB Consolidation Survey – Superfunds summary.

Adolfo Aponte, Director at Lincoln Pensions, said: “While Superfund consolidation is not going to be right for everyone, it is clear that pension professionals believe it could be right for a number of schemes, if an appropriate regulatory framework can be put in place. It is understandable that uncertainty about regulation hampers the enthusiasm to be a first mover – however, once established, superfund appetite appears to be material.”

To find out more please contact Adolfo Aponte, Director, a.aponte@lincolnpensions.com

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