DB superfunds can be a useful tool for employers and trustees to secure their members’ benefits. They aim to improve member security, reduce costs and relieve employers of long-term pension obligations under regulated oversight.
In this guide, we’ll cover the essentials of DB surpluses, how they work, and what recent developments mean for scheme sponsors and members.
What Are DB Superfunds?
Defined Benefit (DB) superfunds are commercial consolidators that accept the bulk transfer of DB pension scheme assets and liabilities. They replace the traditional employer covenant with investor-backed capital buffers, offering an alternative route to insurance buy-out for schemes that may struggle to afford it.
The first transfer to a superfund was approved in 2023, with deals involving the likes of Clara, Debenhams and Wates establishing precedent for superfunds to step in when sponsoring employers are distressed or unable to meet long-term pension obligations.
Why Consider a Superfund?
There are several reasons employers and trustees might opt to transfer to a superfund. One of the most compelling is the improved security they offer, as investor-provided capital buffers enhance the scheme’s ability to pay benefits, even without employer backing. They are cost-efficient, operating at scale and often achieving lower costs than standalone schemes, a desirable benefit for smaller schemes.
Additionally, employers are relieved of their long-term funding responsibilities, helping them stabilise finances or exit legacy commitments. According to The Pensions Regulator (TPR), around 40% of UK DB schemes, especially those with assets under £100 million, couldpotentially meet the “gateway” criteria for superfund transfers.
Regulatory and Legislative Landscape
Currently, DB superfunds operate under TPR’s interim regulatory regime, which includes strict gateway tests to ensure members are not disadvantaged compared to staying in their original schemes.
However, the government’s upcoming Pension Schemes Bill is expected to create a permanent authorisation regime for superfunds by mid-2026 or later in 2027. It will provide legal frameworks for surplus extraction, potentially increasing flexibility for well-funded transfers. Formal legislative backing should lead to broader adoption across the UK and greater confidence among trustees and employers.
How the Transfer Process Works
There are a few key steps typically involved intransferring a defined benefit (DB) pension scheme to a superfund. First, a business should conduct due diligence. This involves assessing whether a transfer meets TPR’s gateway tests – for example, that buy-out is not feasible and member benefits are not harmed.
The company must then secure approval from TPR based on funding, governance and member protection standards. After regulatory clearance, superfund investors inject capital, providing a buffer to replace the employer covenant. Lastly, scheme assets and liabilities are transferred to the superfund, completing the transition.
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