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One-in-five pension schemes considering superfunds, and two-thirds think they are a positive development for members

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July 1, 2020

LONDON, 1 July 2020 – One-in-10 (11%) UK defined benefit (DB) pension schemes have already discussed superfunds as an option for their target end-game, while a further 9% are planning to do so shortly, according to a survey conducted by Willis Towers Watson following the Pensions Regulator’s (tPR) announcement on how it will regulate the superfunds regime.

The survey also found that nearly two-thirds (62%) of participants think that superfunds are a positive development for scheme members, while a further third (34%) were yet to make up their minds. Only a small minority (4%) thought it would not be positive.

Superfunds could present an opportunity for schemes with a “burning platform”, such as a weak or uncertain covenant, who cannot afford to buyout.”

Costas Yiasoumi,
Senior Director, Willis Towers Watson

Costas Yiasoumi, senior director in Willis Towers Watson’s pensions derisking team, said: “We would expect that over time, as superfunds become authorised and complete their first transactions this option will be on the agenda for an increasing number of schemes. Superfunds could present an opportunity for schemes with a “burning platform”, such as a weak or uncertain covenant, who cannot afford to buyout.”

“Those reluctant to jump in too quickly are likely to keep a close eye on progress and would move superfunds on to the table as an option should they become a regular feature of the DB landscape.”

The survey also explored a number of different scenarios to see how it would affect schemes’ attitudes to superfunds. When asked if they would accept the offer of a final lump sum contribution from the sponsoring employer, subject to the scheme transferring to a superfund, over a quarter (26%) claimed they would agree in principle, subject to due diligence.

Of the remaining participants that said they would decline the offer, the main reason given varied from being well funded on a buyout basis already (18%), and having a strong sponsor covenant and desire to buyout or run-off (35%), to those who were less fixed in their course of action but reluctant to be a first mover (8%) and a perception that members would be concerned (7%).

Yiasoumi continued: “We would expect that if superfunds become a regular feature of the landscape more and more schemes would embrace such an offer from the employer. This suggests superfunds could have considerable scope for growth.”

The final scenario asked how schemes would secure pensions for members if their scheme was 90% funded on a buyout basis but their sponsoring employer became insolvent. In this unwelcome scenario 60% of respondents said they would prefer to enter into an insurance buyout that guaranteed that members would receive 90% of their benefit on average with the security of the insurance regime to ensure it was no less. Whereas 40% would prefer to transfer the scheme to a superfund that promised to meet benefits in full, on the assumption that members would receive lower benefits if the superfund were to fail.

Yiasoumi said: “There is clearly an appetite for superfunds and an acceptance that they can have a role to play in delivering good member outcomes for a significant minority of DB schemes. However, it is still early days. Time will tell if superfunds become a permanent feature of the landscape or remain niche players for niche circumstances.”

About the survey

A survey of over 280 pension scheme trustees, chief investment officers and pension directors took place on 24th June as part of a webinar hosted by Willis Towers Watson on pension superfunds. Response rates varied for individual questions.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas – the dynamic formula that drives business performance. Together, we unlock potential.

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