The Pensions Regulator's recent analysis of post-DB consolidation capital flows arrives at a pivotal moment. With Reeves committing £2.5 billion to City Investment Funds and redirecting institutional capital toward domestic growth, the structures we build today will determine whether her vision succeeds or fails.

Three vehicles will dominate the DB landscape: insurer buyout, sponsor-backed run-on, and the new Superfund model. Each of these channels has a part to play in running off the vast sums in DB, but they are tuned to work effectively together and give the scope to deliver on their promise for members, for sponsors and for the wider economy, we are doomed to repeat the safetyism driven failures of the past.

As things stand the lion’s share of this capital pool will be sucked into insurance where investment is constrained by the iron girdle of Solvency UK. Meanwhile, superfunds, which have huge potential to move the dial, risk being squeezed between the other two channels, hobbled by over zealous metrics, and constrained to being niche providers

The opportunity is now. 

The Government  first needs to ensure that Regulations allow DB trustees the freedom to move schemes into superfund consolidators where they think it is in the best interests of their members, regardless of their current or estimated future funding positions.

Secondly, Superfund funding arrangements need to deliver on the Government’s own ambitions to see clear blue water between the pricing of superfunds, and the price of insurance buyout. On the current trajectory there is a risk that superfund entry could be achieved at only close to buyout funding, undermining the potential to succeed.

And finally, the Government needs to ensure that Superfund profit extraction, and DB run-on surplus release are sensibly aligned, to avoid perverse incentives making DB run-on more attractive and losing the opportunity to build the scale that is needed to deliver on productive investment and growth.

Only by allowing superfunds to reach scale in this way, supercharged by allowing the insurers to provide superfunds of their own outside the stifling constraints of Solvency UK will we see these reforms delivering a healthy innovative and productive investment eco system that we so badly need to deliver for our economy.  

The Government has an opportunity to capitalise on the very real potential of the Pension Schemes Bill and develop a powerful narrative around integrated investment and growth. Repairing the investment chain between pensioners’ savings and the places they retire in. Reconnecting savers and society.

But so unless they get the regulation right, they will have only done half a job.