Clara-Pensions, a UK member-first consolidator for defined benefit (DB) pension schemes, has been given the go-ahead by The Pensions Regulator (TPR), marking a milestone in UK pension provision, according to several consultants and pensions organisations.
The regulator announced today that the DB superfund had met “tough standards of governance and administration” during its assessment, adding that it “has demonstrated, through robust evidence, that it meets several criteria, including good governance, being run by fit and proper people and that it is backed by adequate capital”.
Nicola Parish, TPR’s executive director of frontline regulation, said: “We are determined to protect savers and so potential customers of a superfund on our list can have the confidence that the scheme has been through a rigorous assessment process to show they are fit for purpose.”
She noted, however, that it is vital that trustees and employers still carry out their own thorough due diligence to ensure a superfund is the right option for their scheme and members.
Parish also encouraged trustees and employers to only consider a superfund on TPR’s list. “We expect employers considering a superfund to come to us for clearance.”
Guy Opperman, minister for pensions and financial inclusion, said: “This is a welcome milestone which fills a gap in the workplace pensions market.”
He added: “Superfunds are an innovative development in the defined benefit sphere that can increase protection for savers, and their pensions, whilst providing employers with a new, affordable option to manage their legacy pension responsibilities.”
Currently, Clara-Pensions is the only DB superfund on TPR’s list as it becomes the first to reach this milestone.
Adam Saron, chief executive officer of Clara-Pensions, said: “Clara was founded more than four years ago on the belief that consolidation could make pensions safer and support UK businesses. Today’s confirmation that Clara has completed TPR’s assessment process marks an incredibly important step forward in our journey to provide safer pensions.
He noted the superfund will now turn its attention to its first transactions and first pension scheme members.
“We’d encourage trustees, employers and advisers considering consolidation to get in touch to discuss their options, as we plan our transactions for the coming year,” he said.
Viable option
Patrick Lloyd, principal in Mercer’s risk transfer team, said that this regulatory vote of confidence will see several schemes looking at superfunds as a viable endgame solution for their membership.
He added that for some it may be a suitable “contingent” solution to switch to should the sponsor covenant weaken significantly on the journey to their long-term destination.
Under current rules, DB pension schemes are expected to have a long-term objective which usually involves buying out all of their liabilities with an insurance company.
But many pension funds do not have a funding level where this is a viable option in the short to medium term, consultancy LCP stated. This means that a pension scheme with its associated costs and uncertainties will remain on the company’s balance sheet for years to come.
This new option, LCP said, allows pension trustees to transfer the pension scheme – and all its assets and liabilities – to a new superfund which takes over responsibility for paying the pensions due to members.
The cost of the transfer is expected to be lower than buyout. In some cases, the current sponsor will make an additional cash injection to help make the transaction viable, it added.
“After years of discussion and understandable caution from regulators, we should now see superfunds up and running and doing transactions in the coming months. Where a scheme is unlikely to reach buyout funding levels in the near future, moving to a superfund offers a potential win-win for members and employers,” said LCP head of corporate consulting Gordon Watchorn.
TPR launched its interim regime for superfunds and other new models in June 2020, ahead of proposed government legislation. In October 2020, TPR then published guidance for trustees and employers considering a transfer to a superfund.
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