The Growth Of Pensions Superfunds – A Practical Summary On Clara Transactions

From our work on Clara transactions for a significant number of schemes, we have had numerous requests for a headline summary as to how they work and what are the benefits.

We have written a short statement on this, which is in pdf here, and summary below -

http://openpublications.burges-salmon.com/clara-capability-statement/71302675

What is a superfund?

A pension superfund is a consolidator vehicle for defined benefit pension schemes, which enables:

• a scheme to transfer its assets and liabilities to a regulated independently run structure;
• a dedicated capital buffer; and
• a secure bridge to insurance over time, for schemes that are not yet able to achieve buy-out.

Clara is the only current active superfund; new superfund models are expected shortly.

In a Clara transaction, a DB pension scheme’s assets and liabilities transfer to Clara. The assets and liabilities are then managed by Clara Trustees under a dedicated ringfenced section. Superfund transactions receive and require regulatory approval.

Clara is designed as a bridge to buy‑out with an insurer, aiming to secure benefits with an insurer within 5 to 10 years at a lower cost than through an immediate buy‑out.

Clara transactions are suitable for schemes that are looking to transfer their liabilities but are not in a position to pursue buy-out yet. 

In particular, Clara can be an advantageous option:

• in an M&A context, as it can provide an employer with a clean break from pension liabilities at potentially lower cost than buy-out insurance;
• in restructuring proceedings;
• where there is employer solvency risk;
• where the future income from an employer is unlikely to meet a scheme’s buy-out requirements; and
• also in respect of not-for-profit organisations, where funds may be designated for other needs.
• There are currently three statutory gateway tests that need to be met:
• Gateway 1: the scheme cannot access buy-out now;
• Gateway 2: the scheme has no realistic prospect of buy-out in the foreseeable future; and
• Gateway 3: the superfund transfer improves the likelihood of members receiving their full benefits.

From 2028, regulations under the Pension Schemes Act 2026 will remove the Gateway 2 requirement (no realistic prospect of buy-out in the foreseeable future). Instead, the new ‘onboarding conditions’ will require that: (i) buy-out is not possible at the date of the application; (ii) the transfer increases the likelihood liabilities will be met in full in future; and (iii) there is a very high likelihood the superfund satisfies specified funding criteria within a year.

Burges Salmon are leading superfund advisers

• We advised the Trustee of the Church Mission Society Pension Scheme on its agreement to transfer 7,300 members and £55 million in assets to Clara. This transaction was the first to use a connected covenant which broadens the number of schemes that can use Clara and enhances member security through a continuing guarantee from the original sponsor.
• We are advising an employer on the transfer to Clara in a restructuring context.
• We have advised a broad range of trustees and employers on superfund and journey planning options.
• Our experience means we can help deliver superfund transactions smoothly and efficiently.

Some benefits of superfunds

Benefits of superfunds include:

• Superfund pricing can often be materially lower than buy-out providers (testing this assumption for each scheme is important);
• Superfunds give rise to an immediate transfer of liabilities providing certainty to employers and trustees;
• This certainty can assist companies during M&A and restructuring;
• A superfund transfer may offer improved member security through an external capital buffer and professional superfund governance;
• The superfund regime is fully regulated;
• The regime is intended to provide a very high degree of security for members' benefits, with Clara stating that it provides ")99% certainty that members will receive full benefits", measured on a technical provision basis;
• Superfund transactions receive and require regulatory clearance; and
• The transfer process can be accelerated where needed.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.