Defined Benefit  

Second defined benefit consolidator in the works

Second defined benefit consolidator in the works

The defined benefit (DB) market will soon have another consolidator scheme, as a new pension fund is being developed.

In its defined benefit white paper, the government revealed plans to promote consolidation in the defined benefit pension market, in which two thirds of the 5,600 schemes have funding shortfalls.

Alan Rubenstein, former chief executive of the Pension Protection Fund (PPF), was the first to reply to this call for action, by launching the Pension Superfund, which will accept bulk transfers from final salary plans and consolidate them into one occupational pension scheme.

FTAdviser understands that a new consolidator is being created, called Clara, which will come to market in the next few months.

Jon Hatchett, partner at consultancy firm Hymans Robertson, revealed today (2 May) at a Work & Pensions select committee hearing that he is aware of the new scheme being created.

He said: "They aren't trying to run the pension schemes forever, they are trying to warehouse it for five, 10, 15 years, and investors only get any money out of the system when the members are bought out with an insurer.

"They are trying to get something to the insurance gold standard."

Alex Waite, partner at consultant firm LCP, told FTAdviser the Clara preposition is different from the Pension Superfund being brought to the market by Mr Rubenstein.

Clara will have to hold the several schemes segregated, if the ultimate goal is "moving to settle the pension funds with insurance companies".

In Mr Rubenstein's superfund, there will be no distinction between asset and liabilities of the different pension schemes, as it will work as only one pension fund.

Mr Waite argued the best model for companies will depend on their own scheme's characteristics, and that most likely they will have "different pricing points".

He added that companies are already showing interest in the DB consolidation options that are coming to market.

He said: "We are receiving queries from chief financial officers at the clients we work with on this matter."

According to Clara's website, the goal is for the company to become the sponsor of defined benefit pension schemes, taking over responsibility for paying benefits from the original sponsoring employer. 

The site stated: "Unlike the original employer, we have no other focus. Our purpose is paying benefits, so what is right for the scheme is right for us."

Kim Toker, co-founder and chief operations officer at Clara, declined to comment at this time, as the company is not ready to market yet.

maria.espadinha@ft.com