On November 6, 2023, Clara Pensions announced that it has entered into an agreement with the trustees of the Sears Retail Pension Scheme, representing the UK's first Defined Benefit (DB) to Superfund transfer.

The Superfund Concept

Superfunds involve the transfer of a scheme’s assets and liabilities into a consolidating scheme backed by the security of funded capital buffer. That capital buffer, provided by largely by external investors and which may also be supported by a lump sum contribution from the outgoing sponsor, replaces the covenant of the outgoing sponsor giving it a clean break at a lower cost than insurance buy-out. By pooling resources and leveraging economies of scale, superfunds aim to reduce costs and enhance the security of members' benefits.

Clara Pensions, established in 2017, presents itself as a member-first consolidator for DB pension schemes operating on a "bridge to buyout" model which aims to bring the insurance market within reach for more pension schemes and their members. Superfunds like Clara Pensions offer an alternative to the traditional approach of securing benefits with insurance companies. Clara Pensions is currently the only superfund to have successfully completed The Pension Regulator's (TPR) assessment process.

The Impact on Sears Retail Pension Scheme Members

In line with guidance from TPR, the trustees of the transferring scheme will have carefully considered a range of strategies and concluded that the transfer to a superfund improves the likelihood of members receiving full benefits. The transfer of the Sears Retail Pension Scheme members will result in an additional £30 million of ring-fenced funding from Clara Pensions to support the scheme. This increased financial security will be a significant advantage for the members, providing them with more certainty on their journey towards an insured buyout in the coming years. Clearance for the transfer has now been received from TPR and it is expected that the formal transfer of members will proceed at the end of November.

The Future

The Pension Protection Fund (PPF) has previously discussed in a 2019 consultation response how superfunds could potentially pose a systemic risk to the PPF. This, in turn, could affect PPF members, levy payers, and the schemes the PPF supports, underscoring the importance of rigorous regulation and secure implementation to safeguard the interests of members. This transaction therefore represents a significant step for superfunds in the industry and it seems likely that this will pave the way for other pension schemes to follow suit.

The Work and Pensions Committee has published a letter dated 6 November 2023, from Clara-Pensions CEO Simon True in which he says: “As CEO of Clara Pensions, I am extremely proud that Clara is now firmly on the road to making DB pensions safer and more secure for thousands of people. We are currently in conversation with around a dozen further schemes that are interested in transacting and expect these to progress over the coming months".

We will continue to provide ongoing updates on any developments. If you have any queries about anything raised in this blog, please get in touch with a member of the pensions team.

Contributors

Jennifer Crawford

Senior Associate

Juliet Bayne

Partner

Sarah Keir

Trainee Solicitor