XPS Pensions Group believes superfunds should only pay out profits when members’ benefits are secured

XPS Pensions Group (XPS) has today responded to the Government’s consultation on superfunds (consolidators of defined benefit pension schemes). XPS support regulating to allow superfunds to be established because they could increase stability and efficiencies in the pension market. XPS also strongly agree that superfunds will require robust supervision and regulation of their financial stability.

However, two fundamental changes are needed to the proposals to allow superfunds to be effective and address industry concerns that they may risk poorer member outcomes and compete unfairly with insurers. These are:

  • setting strict conditions on when superfunds can extract profits – ideally only when members’ benefits are secured with an insurer; and
  • not setting overly restrictive, subjective gateway conditions that can be gamed

Wayne Segers, Principal at XPS Pensions Group, said: “Superfund investors should only be allowed to take out money when members’ benefits are settled, ideally by transferring to an insurer. This is important to prevent superfunds becoming a systemic risk. It also addresses valid market concerns about unfair competition with insurers.

“A recent poll of over 150 delegates representing pension schemes at XPS’s first Northern conference showed that 65% did not think superfunds would improve outcomes for members. Our proposals would go some way to addressing these concerns.”

Along with strong regulations on financial stability, tighter controls on profits should remove the need for restrictive gateway conditions. Rather, any gateway conditions should put trust in the DB pension scheme trustees, to decide the right approach for their members with appropriate guidance from the regulator.