Bank of England sceptical about pension superfunds

Plans for “pension superfunds”, cleared by industry regulators in recent weeks, could pose a threat to financial stability, according to Andrew Bailey, governor of the Bank of England.

Pensions specialists have spent more than two years working on the concept of pension superfunds, through which a number of large defined-benefit pension schemes could be consolidated into one scheme. 

They argue that where employers are looking to offload their defined benefit pension liabilities – a popular option with firms keen to manage risk and costs – superfunds could offer a better alternative for members and scheme sponsors than working with an insurer, which is currently the only option.

Pension superfunds were effectively given the go-ahead last month by the Pensions Regulator, which published new rules governing how such arrangements could work, including protections for members. 

But while the regulation won the backing of pensions minister Guy Opperman, the Bank of England is understood to have significant concerns. Bailey reportedly believes that the regulation proposed is not robust enough to protect the scheme’s members – and that if a large pension superfund sector develops, this could become a systemic risk.