Warburg, Disruptive Capital Launch UK’s First Pension Consolidation Fund

The private equity firms are providing £500 million to seed the ‘superfund.’

Private equity firms Warburg Pincus and Disruptive Capital Finance are providing £500 million to back the launch of the UK’s first pension consolidating “superfund” that is expected to eventually grow to more than £20 billion.

The Pension SuperFund will consolidate bulk transfers of UK defined benefit pension assets and liabilities into one occupational pension plan.  The companies said the advantages of scale provided by consolidation will allow the superfund to achieve higher investment returns, stronger risk management, and lower costs.

“This, underpinned by the capital provided by its investors, will enable The Pension SuperFund to offer higher levels of security for meeting future pension promises and better outcomes for pension scheme members, trustees, and sponsoring employers,” said the two firms in a release.

The Pension SuperFund will be headed by Alan Rubenstein, formerly chief executive of the UK pension lifeboat the Pension Protection Fund (PPF).  Rubenstein will be supported by a management team with Marc Hommel, the former global head of pensions advisory at PricewaterhouseCoopers, and Luke Webster, CIO of the Greater London Authority.

“The benefits of consolidation are well documented, both in the UK and overseas,” said Rubenstein in a release. “We know that many businesses are constrained by their pension liabilities, and need to find a more affordable way to fulfil their promises to pension scheme members.”

Rubenstein said the superfund is already in talks with several pension funds, their sponsoring employers, and their professional advisers.  There are currently around 5,600 private sector defined benefit pension plans, with obligations to around 11 million members, said Disruptive Capital.

According to a recent report from the Pensions and Lifetime Savings Association (PLSA), the consolidation of pensions “would have enormous benefits in reducing risk to scheme members, and also for sponsors and the wider economy.” 

The report said UK employers have spent £120 billion trying to fill deficits over the past decade, including £13 billion in the first nine months of last year alone. It also said pensions with the weakest employers, which hold 42% of all benefit promises of pension plans in deficit, have only a 50% chance of seeing them paid in full.

And a UK government white paper released earlier this week said that commercially run consolidation vehicles would be a major shift in the defined benefit sector, “but if designed properly we believe that they could both reduce some inefficiency within the system and have the potential to offer better long-term outcomes.”

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