Advisers have dismissed the government’s idea of a superfund for defined benefit (DB) pension schemes on fears over shared liabilities between multiple employers.
In February the Department for Work and Pensions (DWP) revealed its plan for a “superfund” that would see multiple employers pool their DB pension commitments into one all-encompassing fund to give smaller schemes economies of scale.
The DWP’s green paper on DB schemes did note that such a fund would have to be a voluntary initiative, rather than a government run structure.
But advisers have voiced concerns that such a superfund would blur the lines between the liabilities of individual employers.
Scott Gallacher, chartered financial planner at Rowley Turton Private Wealth Management, said that he was “very sceptical” of the idea of a superfund as details over how liability would be divided between employers would be a key concern.
Mr Gallacher pointed to past problems with the Pensions Trust, a multi-employer final salary scheme, as when smaller employers wind up those employer’s DB liabilities have fallen on the remaining employers.
“This has arguable had the effect of forcing more pressure on the remaining employers to wind up due to an increased DB liability,” Mr Gallacher said.
Concerns have been raised that a DB superfund might risk a vicious circle of failing employers and increased liabilities, which could compound to force the fund to go bust.
Christopher Foster, partner at Pennines Independent Financial Advisers, said that he did not see how such a scheme could work as each would have a different liabilities, risk profiles, aims, investment priorities, and potential deficit and deficit reduction strategy.
He added that there are already pooled investment funds available to institutional investors, and if they can share resources such as actuaries then they should re-examine how they are deploying their staff resources.
“I can't understand what they gain that couldn't be gained either by more efficient management or better investment oversight.
“Of course, I expect somebody will push the idea and that somebody might make money from implementing it,” Mr Foster said.
Steven Cameron, pensions director at Aegon, said that while a superfund would offer smaller schemes economies of scale and likely some cost efficiencies, its would be difficult to incorporate different plans under one fund.
“There’s a real challenge in trying to bring together schemes that are different in size and in membership and run them as one.”
In order for a superfund to work Mr Cameron said that smaller schemes looking to join would have to meet certain standards before their liabilities would be taken on.
“I have some sympathy with the concept but the practicalities are highly questionable,” Mr Cameron said.
julia.faurschou@ft.com
