Superfunds: Navigating the legal issues before transacting

We reported in our previous blog published on 19 June 2020 that the UK Pensions Regulator had released detailed guidance for superfunds (also known as ‘DB consolidators’), setting out an interim regime to govern the operation of superfunds pending a longer-term authorisation regime coming into force. Following the publication of the guidance, superfunds are essentially now open for business. Early indications are that a large number of UK defined benefit pension plans have already discussed superfunds as an option for their target end-game, with more planning to do so shortly.

Much of the market commentary to date has focussed on the governance and service requirements and capital and funding requirements of the guidance. Whilst these aspects of the new regime are undoubtedly important there are also a range of legal issues that trustees and employers will need to grapple with to enable initial transactions to occur. These include whether the superfund route is an appropriate end-game for the transferring plan from a trustee duty and employer duty of good faith perspective. Trustees and employers will also need to interrogate the legal integrity of the overall structure of the arrangement such as the segregated status of the superfund (if applicable), the details of the investor contribution commitment and model for return of capital and profits to shareholders. In addition, ceding employers and trustees will need to carefully consider the implications of transferring the plan to the superfund from the perspective of TPR’s moral hazard powers and other residual risks.

In our briefing “Superfunds: An alternative safe harbour: Pensions consolidators open for business” we explore (amongst other things) the relevant legal issues, from the perspective of both employers and trustees, in greater depth. We expect that superfunds will continue to face challenges as they begin to do business in earnest. However, despite the risks of going into uncharted territory, we believe these developments open up a wider range of opportunities for many plan trustees and employers to potentially secure member benefits at an affordable price and within a foreseeable timeframe.

If you would like us to meet with you to discuss the legal issues relating to superfunds generally and the different providers in the market, please speak to your regular contact or call or email any of us listed in this blog post.