UK Pensions Regulator approves first ‘superfund’

Superfunds are designed to take over the management of traditional defined benefit pension funds that have no realistic prospect of ‘buying-out’ their liabilities with insurance companies. 

Superfunds would pool their assets with the aim of running them more efficiently.

Clara, majority owned by investment firm Sixth Street and reinsurer Wilton Re, plans to manage pension scheme liabilities until they can be secured with an insurance company in a ‘buyout’.

Superfund models have taken years to be approved, after concerns were raised that pension scheme member protections could be weakened as a result.

But announcing its decision, the Pensions Regulator made Clara the first name on its list of superfunds that it said had demonstrated good governance, proper management and adequate capital.

Clara is expected to accept its first transfer from a traditional defined benefit pension scheme in the first half of 2022.

Nicola Parish, an executive director at the Pensions Regulator, said: “We are determined to protect savers and so potential customers of a superfund on our list can have the confidence that the scheme has been through a rigorous assessment process to show they are fit for purpose.”

She added, however, that it was vital for employers and trustees to do their own due diligence and seek approval from the regulator before joining a superfund.

Robert Tellwright, pensions expert at Pinsent Masons, said: “This is a significant milestone for Clara and its financial backers, who have had to be patient during an extensive process with the Pensions Regulator to demonstrate that they meet the relevant criteria.”

Tellwright said the length of the approval process showed “just how rigorously the regulator examines these superfund models” as well as its “desire to ensure that the interests of pension scheme members are protected appropriately.”

“The prospect of Clara writing its first transactions in 2022 will be of real interest to many trustees and sponsoring employers of defined benefit pension schemes, who want to achieve the best possible outcomes for their members, but who cannot realistically afford the ‘gold-standard’ of a full buyout with an insurance company,” he added.