Clara Pensions announces PPF+ superfund deal with Debenhams scheme

The UK's second ever superfund transaction comes just months after Clara agreed its first transaction with the trustees of the £590m Sears Retail Pension Scheme.

As a result of the latest deal, some 10,400 members of the Debenhams scheme - which entered the PPF assessment period in April 2019 following the insolvency of Debenhams - will now join Clara, where they will receive 100% of their promised pensions in retirement.

In addition, under the terms of the transaction, £4m in back-payments will be paid to members who received reduced pensions during the PPF assessment period, during which time member benefits were aligned to PPF compensation levels.

Clara will also provide an additional £34m of dedicated funding to support the Debenhams scheme members - something it said "significantly improves" member security and provides increased certainty on the journey to an insured buyout in five to ten years' time.

The Debenhams scheme trustees have now written to inform members of the intention to transfer their pensions to the Clara Pension Trust.

Professional trustee firm Vidett was the chair of the Debenhams Retirement Scheme trustee board, sitting alongside three lay trustees.

Chair of trustees and Vidett client director Mark Cliff said: "Ever since Debenhams went into administration, the trustees have been working hard to find a solution that is in our members' best interests. We are confident that transferring members' benefits to Clara provides the best available outcome for them."

Vidett client director Tom Stockley was also part of the team working on the Debenhams Retirement Scheme trustee appointment.

He said the scheme ran a robust process to choose Clara ­- taking extensive professional advice to assess all the options and working closely with both the PPF and The Pensions Regulator (TPR) throughout the process.

Ultimately, however, he said the trustee had chosen Clara as insurers "were not able to deliver full benefits for the members".

Stockley said: "We had to be comfortable this was a secure home for the members -once that was done, the decision to move to Clara was not a difficult one, because it represented the only option that could deliver on our fiduciary duties."

Cliff said the fact that Clara decided to keep Broadstone as the scheme's administrator was another positive from the trustee point of view - noting it helped provide continuity for the members.

He said: "We've gone through an outsourcing from a traditional in-house model to an outsourced model and then moved to Broadstone and we didn't want any more change."

Cliff added: "It all feeds back into this central point of outcomes for members and member experience… We just felt we had found a sweet spot with what Clara is offering."

A landmark day

Clara Pensions chief executive Simon True added: "This is another landmark day for British pensions and I would like to offer a warm welcome to the 10,400 members of the Debenhams scheme. The trustee of the Debenhams scheme, as well as the PPF, have done an excellent job safeguarding members over the last five years and preparing the scheme for a smooth transition to Clara. We're honoured to take on the responsibility for the next stage of their journey.

"By injecting £34m of new capital we are making these pensions more secure and setting them on the path to an insured future in a few years' time. Joining Clara also means topping up the pensions of all members back to 100% of what was originally promised to them. With 20,000 members now in the Clara Pension Trust, we are firmly on the road to making British pensions safer and more secure."

True added that since the announcement of Clara's first superfund deal with Sears last year, the quality of market engagement it has had has changed - adding it was in now conversation with schemes and sponsors in a number of different situations.

He said the Sears deal had been trustee-led with no sponsor and the Debenhams deal was a variation of that, with the scheme in PPF assessment, but he noted Clara was also having employer-led discussions too.

True said: "We're still getting a lot of trustee-led conversations within our pipeline, but we're also getting employer-led conversations, where the employer is looking for a way to honour its historic promises, to effectively lock in and discharge those, and focus on its core business. So, we are seeing this quite wide range of situations.

"We'd love to do more transactions within the PPF+ world if it hits this sweet spot where we can demonstrably improve member outcomes and get people back to 100% of benefits, quickly recompense them and provide a smooth member experience, we'd love to do more of those. But there are a lot of different flavours of opportunity in our pipeline at the moment."

Regulatory backing

PPF chief customer officer Sara Protheroe said the deal was a positive outcome for members of the Debenhams scheme.

She said: "When a scheme enters PPF assessment, our focus is always to protect members and achieve the best available outcome for the scheme. We're pleased that our collaborative approach working with Clara, coupled with the value from our specialist PPF panellists, has helped secure a better than initially expected outcome for members.

"This deal also demonstrates the success of our PPF+ Advisory panel, which we introduced in 2022 to support overfunded schemes to explore options beyond the PPF, as well as the PPF's ability to continue to evolve to meet the needs of the changing landscape of defined benefit pensions."

TPR interim executive director of frontline regulation Mel Charles added: "We were delighted to work with the trustees of the Debenhams Retirement Scheme, which has been in PPF assessment for several years, in respect of the transfer into a DB superfund.

"Superfunds can offer increased security, improved governance and better risk management which means that pension savers are more likely to get their promised benefit. We want to see fewer, larger, well run pension schemes and are pleased to see the market innovate and consolidate in savers' interests."

Adviser support

Hymans Robertson partner and head of alternative risk transfer solutions Iain Pearce said members of the Debenhams scheme would now benefit from additional capital which would be "locked away until Clara delivers on its bridge to buyout promise to insure benefits in full in the future".

Pearce said: "We're thrilled to have secured this fantastic outcome and helped find a way for members to have their full entitlement restored by transferring benefits to Clara. This has been far from certain during the period since the scheme entered PPF assessment in 2019.

"It has been exciting to support the emergence of superfunds as a new valuable option for trustees. It's enabled the trustees to continue, in challenging circumstances, to fulfil the promise previously given to members."

Hymans Robertson senior risk transfer consultant Harry Allen added: "It's also been great to deliver this project within the PPF panel framework, which seeks to bring together industry experts for schemes in assessment to deliver the best possible outcomes for members.

"We expect that this will accelerate the process for building understanding and knowledge of superfund transfers within the industry, in doing so driving efficiency and reducing execution risk for these transactions."

Osborne Clarke partner and head of pensions Jonathan Hazlett added: "This was a ground-breaking and complex transaction, which has pleasingly resulted in members receiving their full benefits again after Debenhams' insolvency. It was great to be involved in a transaction where all involved worked collaboratively and efficiently to deliver an excellent result for members."

Broadstone took over day-to-day administration of the scheme in June 2022 and, following the Clara transaction, will continue to administer the Debenhams Section of the Clara Trust.

Broadstone PPF team head Liz Loosmore said: "We are very much looking forward to continuing to deliver our administration services to members of the scheme as it enters into this new, exciting phase with Clara Pensions."

Van Lanschot Kempen is Clara Pension Trust's fiduciary manager. UK head of client solutions Nikesh Patel said the latest transaction demonstrated that superfunds were gaining pace in the UK but also highlighted the way in which superfunds are meeting the government's objectives for pension schemes when it comes to bolstering the UK economy.

He said: "Superfunds also illustrate the role pension scheme assets have in supporting the UK economy.

"By providing a longer-term timeline to buyout, superfunds such as Clara enable suitable schemes to both, continue investing in gilts, which is critical for stabilizing the cost of government borrowing, but also to invest in productive UK assets such as UK corporate debt and private credit, supporting businesses across the UK. This is in keeping with the government's ambitions set out in chancellor's Mansion House Speech almost a year ago."

LCP act as investment consultant to the Clara Pension Trust. Senior consultant Dev Gandhi said the latest deal demonstrated the market's growing confidence and means.

He said: "In less than six months since its first transaction, Clara's asset base has already reached over £1bn. With a growing interest amongst other schemes - and any concerns around being an ‘early adopter' eased - we expect the superfund market to go from strength to strength in the months ahead."

Industry involvement

Clara said it had assembled a strong pool of advisers, partners and non-executive directors to ensure it provides members with the safest, best experience possible. It said these included Alan Pickering, chair of trustees of the Clara Pension Trust; Lawrence Churchill, the chairman of Clara's corporate board and the founding chairman of the PPF; as well as consultancies Hymans Robertson and Lane Clark & Peacock as scheme actuary and investment advisor respectively; fiduciary manager Van Lanschot Kempen; and legal firms CMS, Eversheds Sutherland and Travers Smith.

A number of PPF panel firms were also involved with the Debenhams scheme and the transaction process. The transaction was led and advised by Vidett as independent trustee; Broadstone as specialist administration and actuarial panellist; Hymans Robertson as PPF+ advisory panellist; and Osborne Clarke as legal panellists.

About Clara

Clara Pensions aims to act as a "bridge to buyout" for pension scheme members - using the benefits of scale to reduce costs and invest appropriately in preparation for a future buyout with an insurance company.

It promises a "safer pension promise today" by combining its own capital and governance with additional contributions from scheme sponsors - adding it is only once all members have their full benefits secured will Clara provide a long-term return on capital for investors.

Clara was established in 2017 and completed TPR's assessment process for superfunds in November 2021. It is backed by global investment firm, Sixth Street.