At Clara, we work with a growing number of Defined Benefit (DB) pension schemes, staying in regular contact as their funding levels and their sponsor’s business priorities change. What these schemes all have in common is that an insurance buy-out isn’t an affordable option any time soon and that’s exactly the gap that Clara was created to fill.
Although the transaction was announced in December 2024, we started talking to the Wates Group, the family-owned construction group, about ways to reduce risk and improve security for members through the superfund option in 2023. After careful consideration, the business and the scheme’s trustee jointly decided that transferring the members of the fund to Clara-Pensions would be the ideal solution to provide security for members benefits at the same time as removing the pension scheme and its potential volatility from the balance sheet.
Every superfund transfer comes with an injection of fresh capital to support the scheme’s members once they move into Clara-Pensions, strengthening security from the outset. We currently have around £70m of capital supporting our members – with each new scheme transfer into Clara benefiting from its own ringfenced capital pool.
What was interesting about the transaction with Wates Group was that this was our first transaction with an active sponsor. In this case, we worked with Wates to agree a structure where we would both put in extra capital to support the 1,500 members on their journey to an insured buy-out. Alongside the Clara capital, Wates underlined its commitment by contributing an additional £19m as a one-off payment with that amount being considerably less than what would have been needed to immediately move the members to an insured buy-out.
Another benefit for Wates was, as a superfund, Clara is able to take on the significant amount of illiquid assets held within the fund, something insurers are often unable to do in respect of such a wide range of potential illiquid asset classes.
Superfund transactions are subject to regulatory scrutiny, led by The Pensions Regulator (TPR). Because the link between the sponsor and the pension scheme is broken, regulatory ‘clearance’ is pre-requisite to a transfer to Clara. In particular, TPR will be verifying that the transfer is in the clear interests of the members of the pension scheme.
The timeline for regulatory approval can vary from deal to deal, but in our experience TPR takes a pragmatic approach to each deal and the guidance regime it has created has been effective in enabling this.
For this transaction the process was slightly more involved than we had seen on other transfers. As the first transaction involving an active sponsor, TPR was keen to ensure the sponsor and fund trustees had considered the transaction appropriately. Supported by their legal and actuarial advisers, both parties were able to document the benefit to members of the fund by transferring to Clara and TPR provided clearance ahead of members being notified of the transfer.
TPR recently updated its superfund guidance and is working closely with us and others in the sector to refine the approach further ahead of primary legislation for superfunds that is expected later this year.
As the first superfund transaction with an active sponsor, the Wates deal set a new precedent for UK DB pensions, showing that profitable sponsors with ongoing operations can also choose consolidation to secure their pension commitments.
This is another step forward for pension risk management, giving businesses a viable alternative to buy-out where insurance might not be affordable. By transferring to a superfund like Clara-Pensions, sponsors can de-risk while ensuring members’ benefits are protected for the long term.
Our work with Wates is a great example of how superfunds can provide schemes with much-needed stability and security in an uncertain world.
In summary – superfunds are now a proven solution for sponsors of all pension schemes with a desire to settle their liabilities but who cannot afford to move to an insurer.
Matt Wilmington is chief transactions officer at Clara-Pensions
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