The Pensions Regulator (“tPR”) has published guidance which provides an interim framework for regulation of superfunds, prior to a statutory framework being put in place.  This contains tPR’s expectations in a range of areas including funding, investment, personnel and governance. The guidance is aimed at those setting up and running superfunds – including directors, senior managers and trustees. It supplements tPR’s guidance for trustees and employers who are considering transferring to a DB superfund, which tPR has said will be updated in due course.

The guidance is not legally binding. tPR says it is open to considering alternative ways of meeting its expectations, but if a satisfactory alternative means cannot be demonstrated, it will rely on the guidance in the event of enforcement action.


Superfunds are collective DB pension schemes which act as consolidation vehicles. The idea is that if a standalone scheme is unable to afford a buy-out then its trustees may transfer all assets and liabilities to a superfund, with the ceding trustees and ceding employer thereby being discharged from liability. The superfund will have its own statutory employer (a special purpose vehicle) plus access in certain circumstances to a capital buffer contributed by the founding investors and ceding schemes/employers. Members will have less security than under a buy-out but may be in a better position than they would have been under the ceding scheme, either in covenant terms or because the superfund has advantages which come with scale (cost efficiencies, pooling of risk, enhanced investment opportunities). The founding investors will hope to receive returns to the extent that the superfund’s assets and capital buffer prove to be more than is needed to provide members’ benefits. 

The DWP is in the process of establishing a legal framework for the regulation of superfunds, following its consultation which ended in early 2019. Primary legislation will be required to establish the regime, which is expected to feature a requirement for authorisation of superfunds by tPR, similar to the authorisation regime for master trusts. However, there is currently no clear timeframe within which the necessary primary legislation will be put in place. 

Key features of the framework

Key features of the interim framework are described below. In addition, the guidance covers tPR’s expectations on governance, IT, administration systems, internal fees, costs and charges.   

1. Initial assessment and ongoing supervision

  • Superfunds will be expected to provide extensive information to tPR before transacting. This is to enable tPR to assess the superfund against tPR’s expectations.
  • Thereafter, regulation of the superfund will be an ongoing process. tPR has said it will be publishing more information on its reporting expectations for superfunds in the coming months.

2. Funding and capital buffer

To ensure a high probability of members’ benefits being paid in full, tPR’s expectations are as follows:  

  • Technical provisions must be set using prudent assumptions, and the guidance specifies assumptions for calculating minimum technical provisions (e.g., a discount rate of gilts + 0.5%).
  • The capital buffer should cover asset and liability risks, including market and longevity risk, and be set in accordance with tPR requirements. This means, for instance, that a higher risk investment strategy would require a higher buffer. As a minimum, the market risk element of the buffer should, when added to the scheme assets, result in a 99% probability of the scheme being funded at or above the minimum technical provisions in five years.
  • Funding requirements apply on transfers into the superfund.
  • There must be a legally enforceable low risk funding trigger – this applies where total assets (scheme assets + capital buffer) are less than 100% of the minimum technical provisions level. In the absence of a capital injection, all the funds in the capital buffer would come under the control of the trustees of the superfund and would be lost to investors.
  • There must be a legally enforceable wind-up trigger – this is set at 105% of the PPF funding level under s179 Pensions Act 2004. The aim is to protect against a claim on the PPF. If funding falls to this level, the superfund must be wound up.

3. Transfers into a superfund

  • No transfer should be accepted where a scheme can buy out, or is on course to buy out within the next five years.
  • A superfund (or section of a segregated superfund) must be funded to a minimum level before a transfer-in may take place – this is set as the technical provisions level plus the capital buffer.
  • In addition, all transfers-in must meet tPR’s funding requirements on a standalone basis.
  • tPR categorises transfers to superfunds as potentially “materially detrimental” type A events. As a result, it expects a clearance application to be made by the ceding employer prior to a transfer. In the current employer-specific guidance on superfunds (due to be updated), tPR explains that it will assess whether any detriment to the scheme has been adequately mitigated and will seek to ensure that the scheme could not achieve a better outcome through other means.
  • Ceding employers should ensure trustees have all the necessary resources and information to assess a potential transfer, and to this end, tPR states in its employer-specific guidance that it expects employers to pay for the professional advice required by trustees.
  • tPR expects ceding trustees to engage with it at least 3 months before any planned transfer to a superfund.In its trustee-specific guidance (due to be updated), it refers to various factors which ceding trustees should take into consideration when deciding whether to transfer to a superfund – including the scheme’s funding on a solvency basis, professional covenant advice, actuarial advice on funding, legal advice, as well as the funding position and long-term objective of the superfund. There are currently specific details on what should be covered in the actuarial advice and the independent covenant assessment, and it seems likely that further details will be added to these requirements when tPR updates its trustee-specific guidance in due course.
  • Ceding trustees will need to provide evidence to tPR that transferring to a particular superfund is the best option for members as compared against remaining in the scheme or transferring to a different superfund, and will also need to explain why there is no reasonable probability of achieving a buy-out in the foreseeable future.For smaller schemes, tPR accepts that a lack of buy-out pricing would be a reasonable rationale for concluding there is no prospect of a buy-out.

4. Value extraction

  • No funds may be extracted from the pension scheme or the capital buffer, unless members’ benefits are bought out in full.This will be reviewed in three years.
  • Surplus funds in the scheme or capital buffer cannot be used as capital to support new transfers.

5. Financial sustainability of the superfund

  • The financial reserves of the corporate entity which runs the superfund should be ring-fenced, and a proportion should be held in cash, or near cash to address any short-term liquidity issues.
  • Detailed financial information and plans will need to be shared with tPR andmaterial changes will need to be notified.
  • There should be a robust business plan in place, and costed plans for wind-up covering all likely scenarios.

6. Fit and proper persons

The key individuals who run the superfund must be fit and proper persons. This means they need to be financially sound, have the relevant knowledge, skills and experience to carry out their role, and have an appropriate level of propriety.

7. Investments

tPR has set out eight (non-exhaustive) principles that the investments of the superfund’s capital buffer and pension scheme should comply with. tPR expects to see agreements in place where superfunds can demonstrate how they comply with the principles which include:

  1. Capital buffer assets invested as though the Occupational Pension Schemes (Investment) Regulations 2005 apply.

    Where specific provisions do not fit specifically due to the structure of the capital buffer, tPR expects superfunds to ‘comply or explain’ why.

  2. Recognisable maximum allocations

    tPR has set out maximum allocations of any issuance or security to avoid concentration risk. Buy-in policies are excluded.

  3. Assets transferring to the pension scheme or the capital buffer must be subject to a transition plan

    This plan should seek to align the assets as quickly as possible given the liquidity and dealing cycles of the assets concerned and, unless agreed with tPR, it is expected that the plan will demonstrate that transition will be fully completed within 12 months of receipt of the assets.

8. Integrated risk management

tPR has set out expectations for a robust integrated risk management (“IRM”) framework, which should include a liquidity risk management plan and a climate risk management plan. Further, there are stress test requirements, and monitoring that that superfunds will be expected to undertake, including in relation to the funding level and the asset allocation for the pension scheme and capital buffer and how it compares with the strategic asset allocation set for the superfund.


The guidance is broad, and we can expect further detail in various areas in the coming months – in particular, on monitoring and reporting expectations, on the enforceable protections expected in the superfund’s governing documentation, as well as details about transfers out of the superfund. In addition, for pension trustees and employers considering superfunds as a potential destination for members’ benefits, we are also expecting updates to tPR’s employer and trustee-specific superfunds guidance.

The pensions industry has welcomed the regulatory guidance as a step towards establishing a superfund industry which could be a viable option for certain schemes in future. 

It is clear that at least initially, tPR will be taking a very hands-on approach towards superfunds, as it seeks to ensure the security of members’ benefits.