Over a third of DB Pension Trustees aren’t aware of the two key players in the commercial consolidation market - one third (35%) haven’t heard of the Pension SuperFund and nearly two thirds (60%) haven’t heard of Clara-Pensions, according to research from Hymans Robertson, the leading pension and risk consultancy.  In addition only 25% of trustees believe that moving to a commercial consolidator would improve the security of members’ benefits.

Commenting on the research findings and the importance for the industry to understand the consolidation options, Alistair Russell-Smith, Head of Corporate DB, Hymans Robertson says:

“There is clearly a widespread lack of knowledge in the industry about the new players in the commercial consolidation market.  So it is highly likely that Trustees won’t be giving them the right consideration at the moment.  Commercial consolidators, such as The Pension Super Fund and Clara Pensions, could benefit a significant minority of schemes so it is vital the industry builds and grows its understanding about them. 

“Trustees should take time to find out more about both The Pension SuperFund and Clara Pensions, and consider the possibility of them with their sponsoring employers. Even if an employer has previously been reluctant to make significant upfront cash contributions, the ability to get a clean break from their DB scheme at a lower cost than buy-out could now be the incentive that drives a significant cash contribution today.  Trustees concerned about the long term covenant support should seriously consider this option if the cash is now available.  Without fully understanding the options available there is a chance that Trustees could miss an opportunity to improve member security. Our research shows a worrying statistic that only 25% of trustees believe that moving to a commercial consolidator would improve the security of their members’ benefits. However, analysis we have carried out on the Clara Pensions solution shows that the improved funding position, the lower risk investment strategy and the support from the capital buffer post transfer all mean that there is over a 99% chance of members’ benefits being fully insured within 10 years.  This is a vast improvement in member security compared to the status quo in many cases, particularly when covenant risk pre transfer is taken into account.    

“Trustees must also be aware of the differences between the main commercial consolidators so that they choose the path that’s right for their scheme and ultimately its members.  There are fundamental differences between the structures of Clara Pensions and The Pension SuperFund, and while Clara focuses on member security, The Pension SuperFund offers the potential for higher member benefits.

“It is absolutely vital that Trustees make it a priority to get to grips with the details of these new consolidation vehicles.  There is now an established process of regulatory guidance and clearance to follow, ahead of the full authorisation regime coming into force.  This means there is nothing to stop transactions happening now, and indeed early mover advantage means some of the earlier transactions are likely to be on very good terms as the providers build scale.”

To help in the industry’s understanding Hymans Robertson has compiled a short ‘closer- look’ analysis for both The Pension SuperFund and Clara Pensions as part of a wider series on consolidation. We hope these provide a guide to how each consolidator works and the benefits they offer.