Clara takes on church scheme in ‘connected covenant’ first

The deal will see all 730 members of the DB pension scheme transfer to Clara along with the asset portfolio. However, unlike the consolidator’s previous transactions, the Church Mission Society has retained a “continuing contingent guarantee”, adding an extra layer of security for the pension scheme.

“The new arrangement benefits from significant financial commitments from both Church Mission Society and Clara, in addition to the ‘connected covenant’, which means our members retain the long-term protection of our existing security package.”

Richard Hubbard, Church Mission Society Pension Scheme

Announcing the deal, Clara said the connected covenant structure potentially opened up the superfund regime to more DB pension schemes and claimed there was “strong interest” in this option.

Harry Allen, alternative risk transfer specialist at Hymans Robertson, explained that the arrangement was “covenant enhancing, rather than covenant replacing” and described it as “a real breakthrough in the superfund market, which is now gaining significant momentum”.

Richard Hubbard of Capital Cranfield, chair of the trustee board of the Church Mission Society Pension Scheme, said: “As trustees, we are focused on our duty to ensure pensions are paid, and this transaction means our members’ pensions are more secure.

“The new arrangement benefits from significant financial commitments from both Church Mission Society and Clara, in addition to the ‘connected covenant’, which means our members retain the long-term protection of our existing security package.

“With the Clara trustees taking over our responsibilities in a seamless manner, we are confident our members are in good hands. I have been impressed with how all the parties worked together, and would like to pass on my thanks to all the advisers for their collegiate behaviours.”

Advisers praise ‘innovative’ approach

Jack Sharman, principal and senior risk transfer consultant at Barnett Waddingham, which advised the trustees, said the deal was the culmination of many years of work to improve the pension scheme’s security.

“It’s therefore extremely pleasing to have completed this journey by putting members on a clear path towards a full buyout,” Sharman said.

James Ellis, legal director at Eversheds Sutherland, which advised Clara on the transaction, said: “This ‘connected covenant’ transfer is of particular significance for the pensions industry as it highlights Clara’s commitment to seeking innovative solutions to enhance the security of members’ benefits.”

A spokesperson for The Pensions Regulator said: “We have recently cleared the fourth transfer to a superfund. No two transfers have been the same, which demonstrates how we are flexible in our support of innovation in this growing market.

“We continue to work constructively with trustees and employers looking to transfer their DB scheme to a superfund.”

Superfund consolidation an option for non-profit sector schemes

In addition to retaining a link to the sponsor, the deal also marks the first time Clara has worked with a non-profit organisation.

The superfund highlighted that there were around £10bn of unsecured DB liabilities connected to UK charities, which also implied a significant opportunity for consolidation. Matt Wilmington, chief transactions officer at Clara Pensions, said there were “several other charitable schemes” in Clara’s deal pipeline.

Richard Soldan, partner and head of not-for-profit at consultancy group LCP, said this transaction meant superfunds were an option for charities and their pension schemes to “consider carefully”.

“It will be fascinating to see how this market develops – both generally and for not-for-profit employers specifically.”

Richard Soldan, LCP

“The connected covenant option should increase security for the scheme members and significantly reduce, albeit not eliminate, risks for the employer,” Soldan said. “It will be fascinating to see how this market develops – both generally and for not-for-profit employers specifically.”

It comes as the government has set the ball rolling for an expansion of the superfund sector with measures in the Pension Schemes Bill aimed at designing a regulatory framework, potentially enabling more superfunds to be established.

This story was updated on 17 June to add a comment from the Pensions Regulator.