Defined Benefit  

New DB consolidator eyes fully funded schemes

New DB consolidator eyes fully funded schemes

A pension scheme consolidator, which is to launch later this year, will focus solely on fully-funded pension schemes and target smaller pension funds, it has emerged.

Clara Pensions is the second defined benefit (DB) consolidator to be created after the Pension Superfund, which was launched by Alan Rubenstein, former chief executive of the Pension Protection Fund (PPF), in March.

In a letter to Labour MP Frank Field, chair of the Work and Pensions select committee, Adam Saron, Clara’s chief executive, stated the consolidator will require that all schemes will be fully funded based on its prudent technical provisions on entry.

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He wrote: "The question is not what the schemes’ current funding levels are, but rather what are the existing sponsors’ ability and willingness to fund their schemes to the Clara entry level.

"Recent industry research suggests that scheme affordability has fluctuated. Our engagement with sponsors clearly suggests that with the certainty offered by the right solutions they have stronger reasons to accelerate the fulfilment of their obligations to members."

Mr Saron said Clara would establish a new sectionalised occupational pension scheme governed by a board of independent trustees, expecting to be regulated by The Pensions Regulator and to participate in the PPF regime.

"Incoming schemes that become part of the Clara solution will each become a section within the Clara trust," he said.

Mr Saron stated the consolidator's goal was to be a "bridge for members and sponsors to the insured market".

In a buy-out, an insurance policy is issued to each scheme member individually, which enables the pension fund to wind up.

The launch comes after the government revealed plans to promote consolidation in the defined benefit pension market in its recent white paper, with two thirds of the 5,600 schemes deemed to have funding shortfalls.

Although Mr Saron said Clara was not a reaction to the government’s white paper.

He said: "We began work on our solution toward the end of 2016 and Clara itself was incorporated seven months prior to the white paper’s publication.

"Over this time, we have worked with policy makers, regulators, potential clients, service providers and the wider pension industry. That said, we do not view ourselves as having formally launched and have sought engagement rather than publicity."

Mr Rubenstein, who was the first to reply to the government's call for action by launching the Pension Superfund, said his fund will accept bulk transfers from final salary plans and consolidate them into one occupational pension scheme.

FTAdviser reported in May that Clara is being created and is expected to come to market in the next few months.

Regarding the size of the schemes Clara will target, Mr Saron said history of the insured market showed the majority of transactions are below £500m.

"We therefore expect most of our opportunities to come from schemes in the range of £10 – 500m but we are also able to execute larger transactions," he said.