UK’s first commercial pension ‘superfund’ deal has been cleared

The UK’s first commercial pension superfund deal has been announced between Clara Pensions and the trustees of the Sears Retail Pension Scheme.

Under the agreement announced today (Monday), 9,600 members of the Sears Retail Pension Scheme will transfer to Clara Pensions.

Simon True, chief executive of Clara, said: “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 (DB) pensions safer and more secure for thousands of people.

 “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.”

Clearance for the transfer has been received from The Pensions Regulator (TPR), and the formal transfer of members will start at the end of November. 

The Sears trustees have written to the scheme’s members informing them of the intention to transfer their pension benefits to the Clara Pension Trust.

Scheme members will benefit from an additional £30m of ring-fenced funding to support the scheme, which will provide increased certainty on their journey to an insured buyout in five to ten years’ time. 

Clara was established in 2017 and successfully completed TPR’s assessment process for superfunds in November 2021. It operates a ‘bridge to buyout’ model and uses the benefits of scale to reduce costs and invest appropriately in preparation for a future buyout with an insurance company. 

Under this approach, schemes entering Clara are placed in separate sections of the Clara Pension Trust.

The industry responds

Adolfo Aponte, managing director at Cardano Advisory, applauded this new alternative route. He said: “Clara’s announcement is a significant milestone for the pensions industry. Trustees and sponsors have shown consistent interest in executing consolidator transactions in the right circumstances, but the absence of a completed case led to uncertainty around executability. This deal however moves the goalposts and gives another alternative to buyout. 

“Another option, where we now also have a first case completed, includes capital-backed journey plan solutions which offer DB schemes additional security, in the form of capital for a period of time, while the providers run the scheme’s asset to an agreed target return or funding level. 

“These alternative solutions do offer vital de-risking options for schemes but they are still relatively new to the market. It’s important that trustees and sponsors select the right solution that addresses a scheme’s unique circumstances and demonstrably evidences how it would improve its scheme’s members’ outcome.”

This was echoed by Laura Trott, minister for pensions, who expects the emerging superfund market to form part of a longer-term plan for pensions.

She added: “I am confident the market will continue to grow, freeing up employers to focus on their core business, and assisting in the Government’s push for increased productive investment within the pensions sector.”

Nicola Parish, executive director of frontline regulation at TPR, said superfunds can provide increased security.

She said: “Superfunds can offer increased security, improved governance and better risk management which means that pension savers are more likely to get their promised benefit. We want to see fewer, larger, well run pension schemes and are pleased to see the market innovate and consolidate in savers’ interests.”

Iain Pearce, head of alternative risk transfer at Hymans Robertson, applauded the deal, but warned any new structure requires extra due diligence. 

He said: “The conclusion of this first transfer to a superfund is a historic milestone and paves the way for other pension schemes to do the same. 

“As with any new structure or solution, it will be necessary for additional due diligence and steps as the parties involved build their knowledge and understanding of these offerings. This will help them decide whether or not a transaction is right for their own members. As Clara seeks to write more business, we would expect that understanding within the industry will grow. This will mean that the implementation process is increasingly better understood and could help to develop a degree of standardisation, as we see with bulk annuity transactions.  Future superfund legislation can help provide more clarity and execution certainty, and may become more pressing as more transactions are announced.”

Clara is backed by Sixth Street, which is a global investment firm that manages over $74bn (£60bn) in assets. 

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 buyout in the future. 

“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.”