By Sinead Cruise
LONDON (Reuters) - The Pensions Regulator (TPR) on Thursday published the framework for the launch of UK pension superfunds, a new structure designed to ease the burden of Britain's 2 trillion pound ($2.5 trillion) final salary pension sector on cash-strapped firms.
The new guidance, effective immediately, sets out the regulator's expectations on governance of so-called superfunds, how they are assessed and regulated, and the capital they must be supported by.
Britain is grappling with a spiralling pension funding problem after years of rock-bottom interest rates led to big gaps between the sums the pension schemes must pay out and the income they receive from investing.
Retired workers are also living longer and companies hit by economic shocks like the global financial crisis and coronavirus pandemic can sometimes struggle to find the cash they owe.
The superfunds work by consolidating assets from various company pension schemes, with a view to achieving economies of scale and more efficient money management.
"Well-run superfunds have the potential to deliver more secure retirement incomes for workers, while allowing employers to concentrate on what they do best – running their businesses," Minister for Pensions, Guy Opperman, said in a statement.
Pension superfunds provide an alternative to so-called bulk annuities - insurance policies for final salary schemes - offered by major insurers such as Legal & General (L:LGEN) and Aviva (L:AV).
Critics of superfunds have expressed concern about their capital adequacy but TPR said it will require schemes to hold sufficient assets and use special models to measure obligations so they can meet promises to savers with "a high degree of certainty".
TPR said it would provide further information to the market on the operation of its interim guidance before any specific legislation.