Bridge-to-buyout provider Clara-Pensions has agreed with Wates Group and its trustees to transfer £210m in assets and the liabilities for about 1,500 members of the Wates scheme, its first transaction with an active sponsor.

The family-owned construction firm run in the fourth generation will make a £19m one-off payment to improve the scheme’s security as it hands it over, in addition to more than £75m in contributions over the past eight years. Clara will provide an undisclosed sum. 

The deal is expected to complete in January. It marks only the provider’s third in the seven years since it was created, and the first where the scheme still has an active sponsor. The other two transactions were completed with Sears and Debenhams, transferring c.9,600 and 10,400 members, respectively.

The Wates scheme and its Leatherhead-based sponsor decided to opt for a superfund following a review with their advisers. 

Trustee chair Mike Roberts praised Clara’s commitment to members, adding: “This, coupled with the additional funding secured from Wates Group and Clara as part of the transfer, has been key to our decision making. We are confident that, with the transfer to Clara, members’ benefits will be more secure and, in the future, move to an insurance company sooner than if they remained in the fund.” 

  

The sponsor’s chief executive, Eoghan O’Lionaird, said: “Following a rigorous decision-making process with the trustee, we’ve identified an opportunity to further improve the security of our members’ benefits. This is important to Wates, especially given the challenges of both an uncertain economy and market conditions.”

Clara is hoping the deal with an active sponsor will give others confidence to transact.

“We expect this transaction to pave the way for more sponsors seeking to enhance the security of their employees’ and former employees’ benefits by entering Clara,” said Clara’s chief transaction officer, Matt Wilmington.

Clara is in discussions about more than £5bn of liabilities, he said. With the Pension Superfund having left the market after failing to be positively assessed by the Pensions Regulator, Clara is currently the only defined benefit consolidator in the UK.

The Pension Regulator confirmed it has cleared the transaction. Executive director of market oversight Neil Bull said: “Superfunds can offer increased security, improved governance and better risk management, all leading to better member outcomes. We want to see fewer, larger, well run pension schemes and are pleased to see the market innovate and consolidate in savers’ interests.” 

The Clara trustees are advised Hymans Robertson, fiduciary managers Van Lanschot Kempen and State Street, took legal advice from Eversheds Sutherland. Wates was advised by PwC and law firm CMS, while the scheme trustee used consultants LCP, lawyers at Macfarlanes and Cardano. 

Clara was advised by legal firm Osborne Clarke. It is backed by investment firm Sixth Street and was supported in its due diligence by Heywood Pensions Technologies.

The Wates deal is an important step, said Iain Pearce, who heads up alternative risk transfer at Hymans Robertson. It demonstrates the changing perception of superfunds as each deal builds confidence and strengthens deal pipeline for providers, he argued.

“We still expect some bumps in the road, given the market is still in its infancy, but it now seems likely that this market will moves into a new phase of growth,” Pearce said.

Some have previously questioned whether the DB superfund model was still viable given the higher overall funding levels of DB schemes, which makes buyout more likely, but others have said that while some schemes have moved past the level where they would consider a superfund over an insurer, others have moved up into the bracket of schemes where a superfund becomes an option.

The previous government proposed a public DB consolidator run by the Pension Protection Fund, but the new government has not said whether it will go ahead with these plans. The PPF consolidator created some controversy because taxpayers could end up underwriting the benefits of private sector DB members.
   

   

   

   

Do you expect interest in Clara and buyout alternatives to pick up?