Clara-Pensions’ first transaction signals a shift in pension scheme de-risking strategies and represents one of a growing number of new endgame options for pension schemes to embrace as a way to secure benefits for pension scheme members, according to UK pensions consultants.

Clara has today announced that is has completed its first superfund transaction, about two years after becoming the first and only superfund to successfully complete The Pension Regulator’s assessment process back in November 2021.

The transaction with Sears Retail Pension Scheme covers the benefits of 9,600 pension scheme members.

Adam Saron, partner at Greycross Partners and founder of Clara Pensions, said that the biggest barrier to completing the first transaction was “conservatism” and while people saw the benefits of a superfund and how it could work for their scheme, “no one wanted to be the first”.

He said: “Now that the transaction has been done, and quite a significantly sized transaction in terms of members and pounds of liabilities, that concern is now gone.”

He pointed out that the market can now see that not only can this really work as a solution for pension schemes, but that these transactions can get executed from an operational and regulatory perspective.

Dev Gandhi, senior consultant at LCP, agreed that the transaction has the potential to be the catalyst for transformative change in the pensions industry.

Gandhi estimates that there could be £5bn or more of further superfund transactions in the next few years, with new providers and similar solutions entering the market, driving more innovation and competition in the space.

LCP’s partner and head of endgame innovation Jonathan Griffith added that the transaction reflects a reinvigorated commitment to delivering improved outcomes.

He said: “Clara represents one of a growing number of new endgame options for pension schemes to embrace as a way to secure benefits for pension scheme members while also offering enhanced value for other stakeholders.”

Alternative solution

Matt Cooper, head of alternative pension solutions at PWC, said that as an increasing number of pension schemes explore endgame options, superfunds offer schemes with weaker sponsors an alternative solution to enhance the security of members’ benefits.

PWC analysis showed that there are around 500 defined benefit (DB) schemes that may be suitable to enter into a superfund with aggregate assets of £100bn.

Cooper said that although it is a “small proportion” of the £1.4trn 5,000 private sector DB pension schemes market, this corresponds to around 750,000 pension scheme members who could potentially benefit from a superfund.

He added that the market for pension schemes able to potentially benefit from transacting with a superfund is “sufficiently large” to support a number of superfunds to achieve the scale needed to make them commercially viable.

He said: “Superfunds are an innovative development in the UK pensions industry. Today’s announcement should give sponsors and trustees greater clarity in the viability of superfunds as an accessible alternative end-game option and we expect other transactions to follow.”

Iain Pearce, head of alternative risk transfer at Hymans Robertson, agreed that the conclusion of this first transfer to a superfund paves the way for other pension schemes to do the same.

“Other schemes that follow can also gain from external loss absorbing capital in new ways, where doing so increases the chance that members receive all the benefits they were promised,” he noted.

Pearce added that as with any new solution, it will be necessary for additional due diligence and steps as the parties involved build their knowledge and understanding of this offering. This, he said, will help them decide whether or not transaction is right for their own members.

And as Clara-Pensions seeks to write more business, Pearce said he expects that understanding withing the industry will grow.

He continued: “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.”

He added that future superfund legislation can help provide more clarity and execution certainty, and may become more pressing as more transactions are announced.

Capital-backed funding

Adolfo Aponte, managing director at Cardano Advisory, said the deal gives another alternative to buyout.

He highlighted the other option, where a first case was also already completed, as capital-backed journey plan solution which “offers DB schemes additional security, in the form of capital for a period of time, while the providers run the scheme’s assets to an agreed target return or funding level”.

He said: “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.”

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