Wates Pension Fund transfers to consolidator Clara

Defined benefit pension scheme consolidator Clara-Pensions has completed its third transaction, taking on the £210m Wates Pension Fund and its 1,500 members.

It is the first time Clara has acquired a pension scheme with an active sponsor. The transaction is expected to complete in January.

Wates Group, a construction and engineering company, has paid £19m into the pension scheme to support the transaction, with Clara set to bring in additional capital from its investors to secure the members’ benefits.

The 1,500 defined benefit members of the Wates Pension Fund are expected to remain with Clara for between five and 10 years under the consolidator’s ‘bridge to buyout’ model, while the company seeks to improve the pension scheme’s funding position ready for transfer to an insurer.

“We want to see fewer, larger, well run pension schemes and are pleased to see the market innovate and consolidate in savers’ interests.” - Neil Bull, TPR

The £210m figure includes members’ additional voluntary contributions (AVCs), according to Wates.

Simon True, chief executive officer at Clara-Pensions, told Pensions Expert that working with an active sponsor had raised the bar in terms of getting approval from the Pensions Regulator (TPR).

“With our previous transactions we brought additional capital to the table, and the sponsors were effectively insolvent,” he said. “It was arguably a no-brainer for the regulator .

“In this case, there is the covenant of an active employer to consider. What helps is that Clara is member-first, we have cash to put in, and members are transferring to a company with the sole goal of getting them to an insurance transaction – and Wates can get back to its raison d’être.”

TPR executive director of market oversight Neil Bull said: “Superfunds can offer increased security, improved governance and better risk management, all leading to better member outcomes. We want to see fewer, larger, well run pension schemes and are pleased to see the market innovate and consolidate in savers’ interests.”

Innovation in endgame planning

Mike Roberts, chair of the Wates Pension Fund trustee board, said: “This is a very positive development, providing increased security for members’ benefits.

“Throughout this process, we have seen the care and commitment Clara has for its members. This, coupled with the additional funding secured from Wates Group and Clara as part of the transfer, has been key to our decision making.

“We are confident that, with the transfer to Clara, members’ benefits will be more secure and, in the future, move to an insurance company sooner than if they remained in the fund.”

Amy Hemmett, head of superfunds at PwC, said the transfer allowed members of the pension scheme to “benefit from the innovation in endgame solutions while removing the risks associated with managing defined benefit schemes in the current regulatory environment”.

Sam Jenkins, risk transfer partner at LCP, which advised the trustees, said the transaction required advice to be provided on “multiple workstreams concurrently”, necessitating “careful planning and collaborative working between all parties”.

“The end result is a robust commercial agreement with Clara that provides a secure home for members’ benefits and a bridge to insurance in the future,” Jenkins said.

A ‘healthy’ pipeline of future superfund deals

Matt Wilmington, chief transaction officer of Clara-Pensions, said: “This is another exciting day for Clara, as well as for Wates, the Wates trustees and, most importantly, our new members.

“Working with Wates, whose commitment to the care of its former and current employees was to the highest standard, has been a true pleasure. We welcome the company’s willingness to engage in this sponsor-driven transaction model, which enhances the security of members’ benefits.”

Wilmington added that Clara had a “healthy” pipeline of potential deals involving pension schemes with combined liabilities of over £5bn.

Meanwhile, True told Pensions Expert that he expected a busier year in 2025, with at least three more transactions and assets under management potentially doubling to £3bn.

Calum Cooper, head of pensions policy innovation at Hymans Robertson – which provides actuarial services to Clara – said the first active sponsor to transfer a DB pension scheme to a superfund “sets out a pathway for others to follow”.

His colleague Iain Pearce, head of alternative risk transfer, added: “Superfunds have the potential to play an important role in our industry and… to create significant value for stakeholders. They can be the preferred option in many different scenarios and are not only relevant for schemes with distressed or insolvent sponsors.

“As this transaction demonstrates, superfund transfers can be a positive step for all involved, and certainly shouldn’t be viewed as a sign of failure.

“This transaction also demonstrates the changing perception of superfunds. There’s a positive feedback loop now that the market is gaining momentum, with each deal building confidence and strengthening deal pipeline for providers.

“We still expect some bumps in the road, given the market is still in its infancy, but it now seems likely that this market will move into a new phase of growth.”

Clara’s first deal, with the Sears Retail Pension Scheme, was announced in November 2023. In March this year, the consolidator brought the Debenhams Pension Scheme out of the Pension Protection Fund’s assessment process, restoring full member benefits.