In the UK’s first defined benefit (DB) superfund transaction, the trustees of the Sears Retail Pension Scheme (the Scheme) have agreed to transfer responsibility for the retirement benefits of 9,600 former employees at Miss Selfridge, Warehouse and Wallis shops to Clara-Pensions. The Scheme, whilst originally sponsored by Sears, was later sold to Arcadia in 1999 and cut from sponsoring employer links, effectively lying in limbo until now.
To provide some background, superfunds are vehicles which are designed to take over the managing of traditional DB pension funds that have no current prospect of reaching the “buy-out” stage with insurance companies. Despite advantages in employing this mechanism – namely that it can consolidate a fragmented legacy pension scheme sector – superfunds have been slow to gain a foothold in the pensions industry. This is largely due to concerns over pension scheme member protections and the potential of putting individual financial security at risk, which explains why, to date, Clara-Pensions has been the only superfund to pass the rigorous assessment process and be given the green light by the Pensions Regulator.
The Scheme currently has assets worth roughly £600 million but is £67 million shy of being able to afford a buy-out by an insurance company. Clara-Pensions is to provide an additional £30 million of new capital to support the Scheme to increase the security of members’ benefits and to enable the deal to be finalised (being the first of its kind to receive clearance from the Pensions Regulator), with the hope that increased certainty and better investment returns will boost the Scheme to the point where it can ultimately be bought out and members’ benefits paid in full. Fitting in with the current Chancellor’s support for superfunds (announced as part of the Mansion House reforms back in July of this year), this development is perhaps indicative of a shift in attitude towards superfunds (now referred to as DB consolidators). Indeed, we may start to see such deals become more commonplace in the industry – albeit, perhaps more likely with schemes sharing similar characteristics with the Sears scheme – and so it will be worth keeping an eye out for further developments in this sphere.