What is a’superfund’? Although employers may try to get rid of final salary pensions, they could force you into one. But there will be protections

  • A superfund has been approved by regulators to take over final-salary pensions
  • Prior to taking over responsibilities, the employer will have to obtain clearance. 
  • This article examines how superfunds work, and what protections workers have.

Retirement plans: We look at the safeguards for pension savers who end up in 'superfunds' below

Pension plans: Below we examine the safety measures for those who save their pensions and end up in “superfunds”.

After the approval of the second scheme this week, employers could begin to offload final-salary pensions to new superfunds.

Clara-Pensions was approved by the regulators to begin taking over and managing final-salary retirement plans. But, each case will be reviewed individually.

Existing and past employees can request that their employers drop the burdensome final salary retirement responsibilities. Insurers are already available to help.

However, this is a significant upfront expense as insurers will inevitably add a premium. 

A superfund could offer a lower option or a bridge to an entire deal with an insurer.

The final salary, or defined benefit pensions, provide an income guarantee for your life after retirement. If you are not able to continue receiving payments to spouses who have lost their loved ones before you do so, these will be paid.

These pensions have been abandoned by many in recent decades. They are being tempted to abandon them because of the huge transfer value offered by their employers. This could lead to greater inheritance growth, investment growth, and increased security.

This article will discuss the pros and cons.

Currently, almost all final-salary schemes in the private sector are closed to new savers.

The last member of the family will pass away, so all of them (those that are still with their employer or who move to insurance companies and superfunds) will end up in a ‘endgame’.

Here’s a quick look at the potential impact of superfunds on savers and how they will function as a result.

What will happen to final-salary pensioners?

The dates for Clara’s first transfer from an employer to Clara are likely to be several months away. The Pensions Regulator is going first.

Your employer could take your final salary system. If that happens, responsibility for your pension payment would be transferred to the superfund.

This shouldn’t matter to members of the scheme because they are subject to the same level of scrutiny that regulators promise.

Superfund legislation is likely to be enacted by the Government. To ensure that superfunds are strong, the Pensions Regulator will evaluate and approve every transfer to one and each superfund.

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

Steve Webb is the columnist for Money on Pensions. He answers a question from a reader here. 

TPR states superfunds need to be governed by good governance and run by qualified people with adequate capital.

Nicola Parish (executive director of frontline regulatory) says that she is determined to protect savers. This means potential superfund customers can be assured that the scheme has gone through a thorough assessment to ensure they are suitable for their purpose. 

The Pension Protection Fund will step in if a superfund collapses, just as it would when final-salary schemes are closed. 

TPR spokesmen stated that all superfunds should be able to claim PPF protection.

They’ll be assessed a levie, as with any eligible PPF scheme. PPF developed a methodology to determine the amount due commercial consolidators.

What is the opinion of the pension industry?

‘Trustees of schemes have one shot when planning for a scheme’s endgame, they need to get it right and ensure scheme members are front and centre of any decision,’ says Yvonne Braun, director of long-term savings and protection at the Association of British Insurers.

TPR has a right expectation that every application will be scrutinized. The current guidance, which is an interim regulation regime and isn’t prescriptive enough, is set up to do this.

“It strengthens the need to have robust new legislation in order for workers to receive the highest level of protection for their pension.

Joe Dabrowski, deputy director of policy at the Pensions and Lifetime Savings Association, says: ‘TPR’s “authorisation” of Clara marks an important milestone in the formation of the superfunds market and provides fresh options for schemes and employers to secure benefits for their members.

Superfunds were proposed in 2017 by the PLSA-led, defined benefit taskforce. The Minister for Pensions Guy Opperman has championed the idea for many years.

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