What are final pay pension ‘super funds’?

What are ‘super funds’? Employers Trying To Dump Final Pay Pensions Could Dump YOU Into A Pension, But There Will Be Certainties

  • Regulators have approved a super fund to take over the final salary pensions
  • Employers must also be authorized before being given responsibilities
  • We look at how superfunds will work and protecting workers


Pension schemes: Below we look at the guarantees for pension savers who end up in ‘super funds’

People with final pay pensions could see employers transferring them to new ‘super funds’ after the first scheme was approved this week.

Regulators have approved Clara-Pensions to take over and manage the final salary pensions, although all future deals with employers will be examined on a case-by-case basis.

Employers who want to transfer their heavy final pay pension to current and former employees can already pay insurers to take them over.

But this comes at a high cost, as insurers inevitably charge a high premium.

Superfunds can be a cheaper option, or just bridge the gap to a full deal with an insurer.

Final pay or ‘defined benefit’ pensions provide guaranteed income for life after retirement, and ongoing payments to survivors if you die early.

Many have given up on these traditionally safe and generous pensions in recent years, lured by huge transfer value offers from employers eager to get them off their books, greater potential investment growth and inheritance benefits.

Here we examine the pros and cons of doing so.

Nearly all final pay schemes in the private sector have now been closed to new savers.

Eventually, all of them—those who stay with employers or move to insurers and superfunds—will wind down and reach an “end game” when the last members die.

We take a look at how superfunds will work when this all plays out, and what safeguards there will be for savers who end up in them.

What consequences does this have for people with a final salary pension?

The first employer transfers to Clara are likely to be several months out, and The Pensions Regulator will examine any deal first.

If your employer is kicked out of your final pay plan, the responsibility for paying your pension will go to the super fund and then possibly to an insurer.

Given the degree of supervision promised by regulators, in practice this should not make any difference to participants in the scheme.

The government is expected to eventually legislate on super funds. In the meantime, the pensions regulator will review and approve each super-fund, and any fund that moves to one, to ensure they are robust.

My employer has handed in my final salary pension to an insurer – how safe is it now?

This is Money’s retirement columnist Steve Webb answers a question from a reader here.

TPR says superfunds must meet criteria including good governance, be run by knowledgeable people, and be backed by adequate capital.

Nicola Parish, Executive Director of Frontline Regulation, said: “We are committed to protecting savers and so potential clients of a super-fund on our list can be confident that the plan has gone through a rigorous assessment process to show they are fit for purpose. target. ‘

Should a super fund nevertheless collapse, the Pension Protection Fund steps in as a last resort, just like when employers with final salary schemes go bankrupt.

A TPR spokesperson said: ‘We expect all super-funds to establish themselves as eligible schemes for PPF protection.

“Like any other scheme that qualifies for PPF, a levy is charged. The PPF has established a specific methodology for calculating the levy due from commercial intermediaries.’

What does the pension sector say?

“Scheme trustees have one chance when planning the endgame of a schema. They need to get it right and make sure the schema participants are at the forefront of every decision,” said Yvonne Braun, director of long-term savings and protection at the Association of British Insurers.

“TPR rightly expects every application to be examined as the current guidelines are part of an interim regulatory regime that is not prescriptive enough.

“It reinforces the need for robust new legislation to ensure workers receive the high level of protection they expect for retirement.”

Joe Dabrowski, deputy director of policy at the Pensions and Lifetime Savings Association, says: ‘TPR’s “authorization” of Clara marks a major milestone in the shaping of the superfunds market, opening up new opportunities for schemes and employers to secure benefits for their members. to set.

“Superfunds were first proposed in 2017 by the PLSA-led defined benefit taskforce, and the concept has been championed for several years by the Minister of Pensions, Guy Opperman.”

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