Stay informed with free updates
Simply sign up to the Pensions industry myFT Digest — delivered directly to your inbox.
The UK’s first commercial pension “superfund” deal has been cleared by the regulator opening a new route for employers to offload weaker retirement schemes from their balance sheets.
Under the agreement, to be announced on Monday, 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.
“Members will be able to take confidence in the improved financial security of their benefits and the commitment and expertise of Clara,” said Simon True, chief executive of Clara Pensions.
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.
The Pensions Regulator said it was “delighted” to have supported the first pension scheme transferring into a defined benefit superfund.
“Superfunds can offer increased security, improved governance and better risk management which means that pension savers are more likely to get their promised benefit,” said Nicola Parish, executive director of frontline regulation with TPR.
The development comes at an uncertain time for the nascent superfund market, with the government yet to legislate for a legal framework for commercial consolidators and ministers also mulling opening up the market to a public superfund.
Two months ago the Pension Superfund, a rival to Clara, was mothballed five years after its launch after failing to pass the watchdog’s assessment process.
Clara said it had ambitions to grow its book to around £5bn during the next few years, but some experts said significant improvements in schemes’ funding during the past 18 months, driven by interest rate rises, had shrunk Clara’s potential business.
In December 2018, a year after Clara was established, there were 3,008 corporate DB schemes in deficit and 2,442 schemes in surplus, with an aggregate surplus of £14.3bn, according to Pension Protection Fund analysis. By August this year there were 473 schemes in deficit and 4,658 schemes in surplus with an aggregate surplus of £441bn.
The regulator’s current position is that an insurance deal is better for members’ security and that schemes should only transfer to a superfund if there is “no realistic prospect of buy-out in the foreseeable future”.
John Ralfe, an independent pensions commentator, said Clara’s announcement was “a start . . . but it needs to do many more deals over the next couple of years, just to pay the wages, and then demonstrate it is a viable business model”.
“Trouble is that much higher bond yields have transformed DB scheme funding, since ‘superfunds’ were first discussed, and many schemes can now go straight to an insurance company buy-out, with no need to transfer to a superfund.”
Edi Truell, the City financier who established the Pension Superfund, said the regulator’s “pernicious and anti-competitive” gateway test — which states that if trustees can reasonably expect to do an insurance buyout within five years, then they should go to insurance — had put “a dagger in the heart of Clara’s . . . business model”.
