Lessons from the first year of ‘superfunds’

In November 2023, the trustee board of the Sears Retail pension scheme wrote to its 10,400 members, informing them they would be moving to a new home, and a more secure future.  

These members – shopfloor workers, fashion buyers, warehouse operators, and retail managers – were trailblazers, the first people to transfer from a defined benefit (DB) scheme to a DB superfund. 

Another 9,600 swiftly followed from the Debenhams Retirement Scheme, taking this group out of PPF assessment and uplifting their benefits. And 1,500 more members recently joined superfund Clara from the construction and property group, Wates. 

Consolidation into a superfund won’t be for everyone. But for the thousands of DB schemes who want to reach the insured market one day but can’t yet afford it, a new, well capitalised bridge to buyout is now open. 

The idea for superfunds first emerged in 2016. As with any new idea, though, the building blocks took quite some time to fall into place: capital, regulation, pricing, the transfer process, and of course, how to create the right experience for members. These are all now established – and superfunds are here to stay. 

Given it’s been a year and interest in superfunds continues to grow, here are the answers to the most common questions we receive about the transaction process, and life inside a superfund. 

What have your new members made of the experience?

One year in, the answer overwhelmingly is positive. Members have transitioned smoothly, pensions are being paid as planned, and correspondence volumes are similar to what any DB scheme would expect.  

To ensure that members have the best experience, we retained the existing administrators during the transfer of our first two schemes. 

This created a sense of familiarity for members and minimised a potential element of risk during these transactions.  

This won’t always be the case going forward, as in many cases we will want members to transfer to our preferred administrators who have designed a system that best fits with life inside a superfund. 

That’s why so much work has gone into the administration model with those administrators, 

How long is the transaction process?

‘Not as long as you might think,’ is the short answer. We’re now confident that the route to a transaction can be similar to that for a bulk annuity transaction, with the customary 30-day period after this before full transfer of members. 

As you might expect, there was a significant degree of planning during the first deal with Sears. However, even allowing for the more complex nature of the Debenhams deal that followed it, we still saw the timeframe to complete the transaction shorten.  

And we believe the timeframe will be shorter again for future deals as everyone becomes more familiar with the process.  

As is the case for insured buy-ins and buyouts, the quality of member data plays a big role in the speed of a superfund transaction. This should be at the front of trustees’ minds when speaking to a superfund.  

Is there any flexibility on funding level required?

Simply put, yes. Superfunds were conceived as a route for schemes who were almost but not quite at buyout-level funding. In practice, that meant an 85% to 95% funding ratio.  

However, the recent updates to superfund guidance by the Pensions Regulator – and in particular the changes to enable surplus extraction – create more flexibility.  

We’ve started to see trustees and sponsors ask about transactions involving greater pricing flexibility given this updated guidance. Our message would be that this is possible – as are other options the new guidance enables – and we expect to see transactions like this take place in the future. 

How long is the queue, given there’s only one superfund?

There has been a definite increase in superfund interest from schemes in all types of situations, and we expect that to increase following Clara’s first transaction with an active sponsor – the Wates Group – announced in December.  

While we have increased our capacity, in an ideal world, there would of course be several superfunds for schemes to talk to. 

This is something we’re keen to see happen for the good of the wider industry, especially as the government has committed to including a new regime for superfunds in the upcoming Pension Schemes Bill. 

Matt Wilmington is a member of the Society of Pension Professionals and chief transactions officer at Clara Pensions.