Altmann Proposes Life Insurers Run DB Superfunds
Baroness Ros Altmann has proposed an amendment to the Financial Services and Markets Bill that would allow Prudential Regulation Authority (PRA)-authorized life insurers to establish, own, or operate defined benefit (DB) superfunds outside their core insurance business.
The amendment, Amendment 92, co-sponsored by Baroness Bowles of Berkhamsted, would enable life insurers to operate DB superfunds directly or through another company within the same group, despite Solvency UK rules that typically restrict insurance undertakings to insurance business.
Defining DB Superfunds and Ensuring Separation
Under the proposed amendment, a DB superfund is defined as a trust-based occupational pension scheme that has received DB liabilities from another occupational pension scheme, is supported by a capital buffer, and no longer has a substantive employer covenant or is being managed with a view to becoming such an arrangement.
The amendment would require strict legal, financial, and operational separation between an insurer’s core insurance business and its superfund activities. For instance, assets backing the insurer’s capital requirements could not be used to support or subsidize the superfund, while superfund assets could not be used to meet the insurer’s Solvency Capital Requirement.
This separation aims to prevent the failure of a superfund from triggering a transfer of capital from the insurance business, which could weaken policyholder protection. The PRA would be required to develop rules prohibiting intra-group transfers and cross-subsidies between the two businesses.
Potential Benefits and Support for the Amendment
The New Capital Consensus (NCC) has backed the proposal, arguing that opening the superfund market to established life insurers could increase competition and enable more DB pension assets to remain invested for the long term rather than being transferred directly to buyout.
NCC director Ashok Gupta expressed support for the amendment, stating that the £1.3 trillion DB market has enormous potential to transform the UK economy and boost outcomes for savers. He emphasized that allowing life insurers to establish superfunds outside their Solvency UK ring-fenced insurance businesses could allow billions of pounds of capital to be deployed into long-term investment vehicles capable of supporting UK growth.
Gupta also called for superfunds to be viewed as long-term investment vehicles rather than simply a “bridge to buyout”. “If we allow UK-champion life insurers to establish and operate them, we can build our own version of the Canadian Maple-8, which has established access to capital, abundant in-house expertise and a financial sponsor protecting members,” he added.
The amendment also aligns with recent calls from the NCC for greater use of collective risk-bearing vehicles across the pensions market. In its Redistributing the Risk Burden report, the think tank argued that the decline of collective risk-bearing arrangements and continued de-risking of DB schemes had reduced the pensions industry’s capacity to invest for the long term.
Addressing Concerns and Looking Ahead
The amendment has been tabled during the bill’s report stage in the House of Lords, marking a significant step towards potentially reshaping the UK pensions environment. If passed, it could encourage more life insurers to explore superfund opportunities, thereby increasing competition and innovation in the market.
However, the proposal also raises questions about the regulatory framework and oversight needed to ensure that superfunds operate effectively and securely. The PRA’s role in developing rules to prevent intra-group transfers and cross-subsidies will be key in maintaining the integrity of both the insurance and superfund sectors.
As the amendment progresses through the legislative process, stakeholders will be watching closely to see how it might impact the broader pensions industry. With the potential to unlock significant capital for long-term investments, the proposal could mark a turning point in how DB pension liabilities are managed in the UK.
