Awareness of the two main commercial consolidators - The Pension SuperFund and Clara-Pensions - has rocketed amongst DB pension trustees over the last year and started to influence long term objectives for DB schemes too, according to the annual Trustee Barometer research from Hymans Robertson.

Only 8% of pensions trustees had never heard of The Pension SuperFund in this year’s survey, a massive drop from the third (35%) who said they were unaware of The Pension SuperFund last year. Awareness of Clara-Pensions had also shot up, with less than a fifth (17%) saying they’d never heard of the commercial consolidator, compared to nearly two thirds (60%) last year. This greater awareness is starting to influence long term objectives for DB schemes too, according to the leading pension and financial services consultancy’s analysis. Of those who have reviewed their scheme’s ultimate goal in the past 12 months, a third (33%) of trustees said that ‘determining whether or not they might benefit from commercial consolidation’ was their main driver for doing so.

Commenting on the research findings and why it is important for trustees to understand the commercial consolidation options, Alistair Russell-Smith, Head of Corporate DB, Hymans Robertson says:

“Clearly awareness is growing in the industry about the commercial consolidators and it is interesting to see that they are beginning to influence long term objectives for DB schemes. One of the outcomes of the Covid-19 crisis is that it has highlighted the frailty of some sponsor covenants. Even when schemes are fully funded on Technical Provisions and not receiving deficit contributions from the sponsor, they remain exposed to the sponsor covenant. This is because corporate insolvency triggers scheme wind-up and a haircut to members’ benefits, unless the scheme is fully funded on an insurance buy-out basis. The scheme is therefore in a race to reach buy-out funding before the sponsor defaults.

“Given the new funding regime is expected to require schemes to be fully funded on a “low dependency” basis in 15-20 years, many schemes will only reach a more prudent insurance buy-out funding position in 20+ years. The risk of employer default before reaching full buy-out funding is very real – there’s already a 1 in 4 chance of sub-investment grade sponsor failure by 2040; and the solvency stresses and economic uncertainty through COVID-19 is only re-affirming the risk.

“Commercial consolidators, such as The Pension SuperFund and Clara Pensions, provide an ‘insolvency remote’ solution because employer default no longer triggers a scheme wind-up once the scheme is in a consolidator. In cases where employer default is a realistic possibility on the journey to buy-out, moving to a commercial consolidator starts to look a sensible way to protect against a hair-cut to members’ benefits on an employer default.”

To help in the industry’s understanding of commercial consolidators Hymans Robertson has spoken to Antony Barker, Managing Director at The Pension SuperFund and Ashu Bhargava, Senior Actuary at Clara-Pensions in these two podcasts:

The Pension Superfund - Hymans Robertson Podcast

Clara-Pensions – Hymans Robertson Podcast