The UK Pensions Regulator (the Regulator) has today announced that Clara, a ‘superfund’ solution for UK defined benefit pension schemes, has become the first superfund to meet the tough regulatory standards of governance and administration set out by the Regulator.
Superfunds (also known as ‘DB consolidators’) are pension schemes set up under trust by the superfund provider. Essentially, a transaction would involve transferring the assets and liabilities of a particular employer’s pension scheme to the superfund thereby removing the employer covenant of the scheme and releasing the employer from further liabilities. The employer covenant is replaced with the security of third-party capital (typically provided by institutional investors such as specialist private equity funds) which backs the superfund. In most cases this process will also involve a material improvement in funding provided by the departing employer sponsor as a lump sum contribution to the superfund.
Currently, superfunds are subject to interim guidance issued by the Regulator which is intended to govern the operation of superfunds pending the introduction by the UK government of a comprehensive legislative framework for authorisation and supervision in 2022. The Regulator has today confirmed that Clara has been assessed by the Regulator and 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.
The Regulator’s approval allows Clara to begin engaging with employers and trustees of UK defined benefit pension schemes, with a view to entering into transactions to transfer scheme assets and liabilities to Clara in the near future.
Adam Saron, CEO of Clara, has said that: 'We now turn our attention to our first transactions and our 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.'
The Regulator has also published a list of assessed superfunds (currently including only Clara), and further detail on the regulatory assessment process.
We have previously commented that despite the risks of going into uncharted territory, superfunds open up a wider range of opportunities for many scheme trustees and sponsors to secure member benefits within a foreseeable timeframe. It now looks like superfunds are open for business.
For further information on pension superfunds (including the regulatory regime), see our previous blog (“Pension Superfunds: New guidance issued by TPR”) and associated briefing (“Superfunds: An alternative safe harbour?”).