Defined Benefit  

DB consolidator in talks with more than 40 schemes

DB consolidator in talks with more than 40 schemes

Clara Pensions, a new defined benefit (DB) consolidator which plans to formally launch later this year, is in talks with more than 40 schemes, the co-founders have revealed.

Speaking to FTAdviser, Adam Saron and Kim Toker said that they are aiming to take on the first scheme in December.

Chief executive Mr Saron said: "Talks are far further developed than we expected at this point."

However, Clara Pensions – which will act as a bridge for members from their current company sponsor to the insured market – is waiting for the consultation from the government on defined benefit consolidation before taking on its first client.

In its white paper published in March, the Department for Work & Pensions (DWP) revealed plans to promote consolidation in the DB pension market, in which two thirds of the 5,600 schemes have funding shortfalls.

FTAdviser previously reported that consolidation was a top priority for the DWP, which has been having discussions with the industry on this topic.

A consultation on this matter is expected to be published this autumn.

Mr Saron said: "The consultation from the DWP and the consequent guidance from The Pensions Regulator will help the first transaction happen, because it will give confidence to scheme trustees.

"The objective is to get it right, not to get it fast."

Ms Toker, chief operating officer at Clara, explained that there are four reasons why schemes find the consolidator proposition attractive.

Some are tired of DB volatility distracting from their main business activities, while others are involved in merger and acquisitions, and new funds might be released from that activity to plug the pension fund deficit.

Schemes with overseas sponsors also showed interest, as well as trustees from schemes that are well funded by are worried about the employer covenant strength in the future.

Clara Pensions proposition is different from the only other announced consolidator, The Pension Superfund.

Each scheme will have its own section under Clara, with its assets and liabilities ring-fenced from other pension funds, while The Pension Superfund will consolidate all plans into one occupational pension scheme.

This is due to the fact that Clara's goal is for each scheme to reach a stage where it can afford a buy-out.

In these type of transactions, an insurance policy is issued to each pension scheme member individually that enables the pension scheme to wind-up.

For a scheme to enter Clara, it will need to be fully funded, alongside the full capital required for buyout. 

This buffer will be paid by the scheme sponsor and the consolidator's investors, which are still unknown.

The consolidator – and its investors – will only get paid when the scheme goes into buy-out, which Mr Saron and Ms Toker expect to be achieved in a timeline of five to 10 years.

The Pensions Regulator (TPR) has said it is expecting to have a role in approving consolidation transactions in the DB market, which has been welcomed by Clara's co-founders.