Congratulations to Clara for doing the first superfund deal – well in advance of Christmas!
Under the agreement… 10,000 members of the Sears Retail Pension Scheme will transfer to Clara Pensions, a “superfund” that promises employers a cheaper way to offload their pension obligations than a traditional insurance “buyout”. The deal, which will see Clara take over the scheme’s £590mn assets, is the first of its kind in the UK and comes six years after Clara was set up.
Clara, which will provide £30mn of new capital to the Sears plan, will use the scheme’s assets to generate returns to pay pensions with the aim of securing a full buyout deal with an insurer within five to 10 years. Sears is now out of the picture and the members need fear no more a haircut from the PPF. In the USA, Sears Retail is all but bust
The Pension Regulator will be “delighted” but it should not be too delighted. As Louise Davey has admitted in a recent speech to the SG Pensions Conference, we are missing a degree of detail on how superfunds can extract capital/profit from these arrangements. I understand that a mini-consultation has now been circulated to key stakeholders which is allaying many of the concerns that potential superfunds may still have.
The Clara model has a limited duration with the aim being to provide a bridge to buy out , rather than the long-term investment proposed by pension superfund. As such, Clara is not the ideal vehicle to carry the long-term assets that the Government would like pensions to carry.
And – with a Gateway test that tells trustees that if they can get a buy-out quote they should go straight to buy-out, Clara’s available market looks diminished. High yields make many pension schemes more attractive to insurers.
But let me not get ahead of myself, the pension superfund is still in mothballs.
Nevertheless, today is a big step in the right direction for DB options , meaning that schemes whose sponsor wants out can defer the decision to buy-out and put their assets and liabilities in the hands of competent and professional managers.
Well done Clara, may this be the first of many and may you go on to hit your quoted target of £5bn in assets and liabilities under your management. If this comment from Matt Cooper, Head of Alternative Pension Solutions, at PWC is right, there is plenty of opportunity.
“As an increasing number of pension schemes explore end-game options, superfunds offer schemes with weaker sponsors an alternative solution to enhance the security of members’ benefits.
“According to our analysis, there are around 500 DB schemes that may be suitable to enter into a superfund with aggregate assets of £100bn. Although a small proportion of the £1.4trn 5,000 private sector DB pension schemes market, this corresponds to around 750,000 pension scheme members who could potentially benefit from a superfund. The market for pension schemes able to potentially benefit from transacting with a superfund is sufficiently large to support a number of superfunds to achieve the scale needed to make them commercially viable.
“Superfunds are an innovative development in the UK pensions industry. Today’s announcement should give sponsors and trustees greater clarity in the viability of superfunds as an accessible alternative end-game option and we expect other transactions to follow.”
Clara-Pensions announces agreement with Trustees of the Sears Retail Pension Scheme to transfer members to Clara in UK’s first pension superfund transaction
- Sears’ c. 9,600 Scheme members will become the first to enter a UK pension Superfund as they begin their journey to an insured buyout
- Clara to provide £30m of new capital to increase the security of members’ benefits
- Transfer to Clara has also received clearance from The Pensions Regulator
How it works
Clara-Pensions (“Clara”), the member-first consolidator for defined benefit pension schemes and the Trustees of the Sears Retail Pension Scheme (“Sears”) have reached agreement on the UK’s first superfund transaction.
The Sears Trustees have written to the Scheme’s members informing them of the intention to transfer their pension benefits to the Clara Pensions Trust. Clearance for the transfer has now been received from The Pensions Regulator, and the formal transfer of members will proceed at the end of November.
Scheme members will benefit from an additional £30 million of ring-fenced funding to support the Scheme, demonstrably improving member security and providing increased certainty on their journey to an insured buyout in five to ten years’ time. Clara was established in 2017 and successfully completed The Pensions Regulator’s assessment process for superfunds in November 2021. It operates a ‘bridge to buyout’ model and uses the insurance company.
Under this approach, schemes entering Clara are placed in separate sections of the Clara Pensions Trust. Additional capital from Clara’s capital providers is injected to create a funding buffer for the scheme. Clara is backed by Sixth Street, a diversified global investment firm which manages over $74 billion in assets and has more than 500 team members operating around the world.
The Trustees for the Sears Retail Pension Scheme, said: “We have been carefully managing the Scheme with the aim of securing all members’ benefits with an insurance company through a full buy- out in the future. As part of this transaction, Clara will provide an additional £30m of funding, which will support the Scheme’s journey to a successful buy-out and provide greater security for members.
The Scheme’s current administrator Isio will remain in place and Clara is committed to putting members’ needs first, which will ensure members continue to receive the excellent quality of support we have committed to as trustees. We are delighted to have reached this agreement with Clara and are confident that the proposed transfer is firmly in our members’ best interests.”
Simon True, CEO of Clara-Pensions, said: “This is a landmark day for Sears’ members, as they become the first members of Clara and will benefit from a day 1 injection of new, ring-fenced capital of £30m to support their journey to an insurance buyout.
Members will be able to take confidence in the improved financial security of their benefits and the commitment and expertise of Clara. “Insurance remains the gold standard for any pension scheme member, but not all schemes can afford to reach that goal.
Clara was created to provide a safe bridge that brings the insurance market into reach for more schemes and their members. “This agreement with the Sears Trustees is the UK’s first pension superfund transaction. Clara is now firmly on the road to making defined benefit pensions safer and more secure for thousands of people.”
Alan Pickering, Chair of Clara Trustee Limited, said: “The Trustee Board of Clara looks forward to welcoming our new members into the Clara community. This is a significant step forward in the members’ journey to securing their benefits and improving member outcomes.”
Since undergoing The Pensions Regulator’s assessment process in November 2021, Clara has been preparing for its first transactions and has built strong engagement with around a dozen schemes that are keen to transact. Clara has also assembled a strong pool of advisers, partners and non-executive directors to ensure it can provide its new members with the safest, best experience possible. These include:
- Lawrence Churchill, Chairman of Clara’s corporate board and the founding chairman of the Pension Protection Fund
- Alan Pickering, Chair of Trustees for the Clara Pensions Trust and the former Chairman of the National Association of Pension Funds, now known as the Pensions and Lifetime Savings Association (PLSA)
- Leading consultancies Hymans Robertson and LCP (scheme actuary and investment advisor respectively); fiduciary manager Van Lanschot Kempen and legal firms CMS, Eversheds Sutherland and Travers Smith
This transaction was advised by the following parties:
- CMS, legal advisers to Clara-Pensions
- Van Lanschot Kempen, fiduciary investment manager to Clara-Pensions and Clara Pension Trust
- Eversheds Sutherland, legal adviser to the Clara Pension Trust
- Hymans Robertson, Scheme Actuary of the Clara Pension Trust
- LCP, investment adviser to the Clara Pension Trust
- Sackers, legal adviser to the Sears Retail Pension Scheme
- WTW, lead pension risk transfer adviser and Scheme Actuary to the Sears Retail Pension Scheme
- Barnett Waddingham, investment adviser to the Sears Retail Pension Scheme