Is Sears a prototype?

Several people have commented on yesterday’s post that the £30mn buffer provided by Clara to support the £600mn Sears pension appears ” a little low”. A bit of digging into the Sears accounts reveals that the scheme has already entered into two agreements with L&G that mean a third of the liabilities are covered by insurance by way of bulk annuities bought by the trustees. These happened in 2013 and 2019 at what would have been rather less than fair value today. So it’s really a £400m buy-out with the task of turning a buy-in to a buy-out down the line.

With the sponsor little more than a basket case, this like an expensive rescue job, Clara have to turn round a scheme that barely looked viable to the PPF and make it “buy-out ready) in under ten years. Without the long-term outlook of scheme planning to pay pensions in full, this looks like a tough call for Clara and its PE backers.

There’s a second issue here around competition. I’d be interested to know what other options were looked at by the trustees with the help of their advisers.  The Sears deal is a good deal for Sears, the soon to be former trustees and of course the members, and the timing of its announcement , the day before the King’s speech, could not be more propitious for the Government and its Mansion House reforms.  However, I wonder if it isn’t just a little too good to be true.

I also wonder if the trustees  might not have been continued using a capital backed journey plan and kept their options open, till guidance and legislation on superfunds becomes clearer.

Is Sears a “loss leader” or an expensive “proof of concept”?  In many ways, it doesn’t matter, the deal is done. Even if it is an expensive proof of concept, it opens the “door to more”.  Clara has done us a favor.

That is in contrast to Royal Mail’s CDC plan which is clearly trying to prove the concept but anything but a done deal.