What pension trustees need to know about superfund transfers

Transfers to pension superfunds are becoming a more frequently-considered option for pension scheme sponsors and trustees thinking about their scheme’s ‘endgame’. There have now been a number of transfers to Clara, the UK’s first commercial superfund, which recently announced its eighth transaction.

A superfund is a type of pension fund that takes on private defined benefit (DB) pension schemes’ liabilities, breaking the link with their sponsoring employers. Transactions can be complex, with a lot of moving parts, and pension scheme trustees who are considering whether a transfer to a superfund is right for their scheme should prepare carefully.

The pensions team at Pinsent Masons has recently advised trustees of a number of schemes on transfers to Clara and other endgame options. Below, we outline five things for trustees should know when contemplating a superfund transfer.

Good data is critical

Trustees should aim to ensure their data is as good as possible, preferably before they begin discussions with a superfund. This will help the chosen superfund to price accurately and will reduce associated risk to the trustee. 

Role of The Pensions Regulator

While the scheme’s employer(s) will need to make a clearance application, the trustees and their advisers will also need to provide relevant information and analysis to The Pensions Regulator (TPR) as part of this process.  

This is needed to demonstrate that the three ‘gateway tests’ are met: that the transferring scheme cannot afford a traditional insurance-backed buy-out now; that the scheme has no realistic prospect of buy-out in the foreseeable future; and that the transfer improves the likelihood of members receiving full benefits on retirement.

Trustees should expect TPR to take a keen interest in the proposed transaction and be prepared to provide information about the scheme as required.  

Trustee duties are key

Although the transaction will be subject to TPR’s approval, trustees will also need to be satisfied that they have the power to make the bulk transfer and that doing so is a proper use of that power, consistent with their duties. 

In short, trustees will need to know that they can make the transfer, and to be satisfied that it is the right thing to do for their members. Advice should be sought on the relevant factors in this context to support the trustees’ decision-making. 

Certificate requirements

​Bulk transfers without consent can only be made if certain criteria are met, including that the scheme actuary must provide a certificate confirming:

• that the transfer credits to be acquired for each transferring member in the receiving scheme are “broadly, no less favourable than the rights to be transferred”; and
• where there is an established custom for discretionary benefits or increases in the transferring scheme, there is good cause to believe that the award of such discretionary benefits will be broadly no less favourable in the receiving scheme.  

Once granted, the certificate lasts for three months. Any transfer will need to be made within that window or a new certificate will need to be obtained. 

Think about trustee protections early on 
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Unless the transaction is on an ‘all risks’ basis, some potential liabilities – such as unidentified members – may be retained in the transferring scheme. The trustees and employer should agree where liability for any such retained risks should sit, ideally early on in the process. They should also agree whether it would be appropriate to buy insurance to cover them. 

Trustees or employers who are considering a superfund transfer should seek informed legal advice on how to transact with a superfund to ensure they deliver the best outcomes for their pension scheme members.