Trustees lukewarm on consolidator benefits

Thirty-five per cent of trustees have not heard of the Pension SuperFund and 60 per cent have not heard of Clara Pensions, according to research from Hymans Robertson.

In addition, only 25 per cent of trustees say that moving to a commercial consolidator would improve the security of members’ benefits.

There are fundamental differences between the structures of the two providers that have currently entered the market. While Clara focuses on member security, The Pension SuperFund offers the potential for higher member benefits, according to Hymans Robertson.

Alistair Russell-Smith, head of corporate DB at Hymans Robertson, which advises Clara, said superfunds “could benefit a significant minority of schemes”, despite trustee misgivings.

“Even if an employer has previously been reluctant to make significant upfront cash contributions, the ability to get a clean break from their DB scheme at a lower cost than buyout could now be the incentive that drives a significant cash contribution today,” he said.

He added: “There is now an established process of regulatory guidance and clearance to follow, ahead of the full authorisation regime coming into force. This means there is nothing to stop transactions happening now, and indeed early-mover advantage means some of the earlier transactions are likely to be on very good terms as the providers build scale.”

However, Duncan Buchanan, partner at Hogan Lovells, said trustees are right to be cautious.

“[Trustees moving into a superfund] are exchanging the employer's ‘dynamic’ covenant (its business) for the consolidators’ ‘static’ covenant (the capital that the funders of the consolidator have put at risk),” he said, explaining that regulatory clearance will be a key barrier to transfer. “It must be demonstrated that the move will lead to a better member outcome.”