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British pensions provider TPT wants to launch a defined benefit “superfund” that will hold schemes rather than selling to an insurance company, in an attempt to revive a model of pensions consolidation that has met some resistance from financial regulators.

TPT Retirement Solutions, a mid-sized provider that manages £11.1bn of pension assets, said on Thursday it had secured funding to launch a DB scheme consolidator — or superfund — to complete £1bn of transactions. The company estimated that the fund, which also aims to become the first to share profits with members, could grow to up to £3bn in the first five years. 

Superfunds enable companies to offload their pensions obligations before they hit the high funding levels required to sell to an insurer, in a deal known as a buyout. The TPT proposal would allow pension schemes to “run on”, rather than acting as a bridge to a buyout, and enable profits to be shared.

“The plan is to use the surplus that arises from running the superfund to augment member benefits” said David Lane, chief executive at TPT. The group plans to submit its proposal to the pensions regulator for assessment in January.

Lane said the amount shared with members would depend on a range of factors — including a scheme’s funding level on entering the superfund and investment performance — but that over a 25-year period “the majority of the surplus would accrue to the members”.

So far only one commercial superfund appears on the regulator’s list of assessed superfunds, Clara Pensions, which completed its first deal in late 2023. Clara’s model specifically aimed to improve schemes’ funding levels to the threshold required for buyout.

Veteran financier Edi Truell set up Pension SuperFund in 2018 as a way for businesses to offload their DB schemes at a lower cost than in an insurance deal. People close to the company said the fund was never listed as meeting the regulator’s assessment criteria, despite being submitted for approval.

David Fairs, partner at consultancy LCP, said the regulator had set a “high bar” for the launch of superfunds, but that he expected further applications as government policy on superfunds had become more clear in a pensions bill expected to become law next year.

He added that schemes that planned to run on “clearly have a different risk profile” than those that are a bridge to buyout. But these also take a longer-term view that could fit with the government’s ambition to boost investment in UK companies, he said.

The UK has close to 5,000 corporate DB pension schemes managing about £1.2tn of assets on behalf of 8.8mn members, according to data from the Pension Protection Fund. The vast majority of schemes are closed to new members. 

In 2020, the pensions regulator issued interim guidance for setting up superfunds. But take-up so far has been slow after a rapid rise in interest rates in 2022 improved the funding levels of many defined benefit schemes.

In 2024, UK DB pension schemes on aggregate were 94 per cent funded on a net buyout basis, the level at which a scheme can be sold to an insurer, representing a deficit of about £70bn, down from £615bn in 2021. 

While there can be a one-off uplift in member benefits in buyout transactions, most deals would see pensions paid as per the scheme rules — with little scope for further improvement.

“Ongoing, more dynamic sharing of value can be useful over long time periods, for example if the inflation situation changed radically” said Raj Mody, an independent pensions expert.

Insurers are also starting to look at offering more flexible options. M&G, which re-entered the DB pension buyout market in 2023, announced plans last month to launch a with-profits bulk purchase annuity, providing more scope for enhanced member benefits.

The Pensions Regulator said it welcomed innovation “that has potential to improve outcomes for savers and provide choice for trustees”.