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Thousands of members of collapsed retailer Debenhams' pension scheme are set to have their pension benefits restored under a ground-breaking deal for the emerging UK “super fund” market.
More than 10,000 Debenhams pension plan members were transferred to the UK's Pension Protection Scheme in 2019, following the collapse of the 240-year-old retail group. The so-called pension lifeboat takes control of the assets and liabilities of pension schemes in failed companies.
But thousands of former Debenhams employees then suffered reductions in their expected retirement benefits under the terms of the reduced compensation of the Pension Protection Fund.
In the first deal of its kind, to be announced on Thursday, Debenhams will be transferred from a lifeboat scheme to Clara Pensions, the new commercial pensions 'super fund' operator.
So-called super funds have emerged as a cheaper option for employers looking to divest from retirement plans without paying a premium to buy out the insurance outright. However, the growth of the superfund market has largely stalled due to insurance sector concerns that superfunds are less regulated than competing insurers.
The Bank of England's Prudential Regulation Authority, which oversees insurers, has previously raised concerns about super funds and regulatory arbitrage, and said they should only be used as a starting point for a full takeover. The Pensions Regulator then issued guidance saying that a transfer to a super fund should only be considered if the scheme has no realistic prospect of a takeover in the “foreseeable future”.
The Debenhams deal was made possible in large part by a recent significant improvement in funding positions for defined benefit pension schemes, which promise members a lifetime pension – usually based on salary and length of service.
This trend was driven by rising interest rates which reduced the cost of pension liabilities.
Simon True, chief executive of Clara Pensions, which made its first transaction last year with corporate pensions, said: “This is another historic day for British pensions and I would like to extend a warm welcome to Debenhams’ 10,400 members.” The plan that was not in the sandbox.
Under the Debenhams deal, Clara will acquire and invest the scheme's £600m assets, with the aim of generating sufficient returns for the scheme to be able to afford a full takeover with an insurer within five to ten years, Clara said.
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As part of the deal, Clara has committed to injecting £34 million of new capital to support the scheme's investment journey through to acquisition.
Members will also receive 100 per cent of their promised pensions on retirement, and Clara has also promised to pay £4 million in back pay to members who received reduced pensions during the scheme's lifeboat period.
Before Clara's arrival – which describes itself as a “bridge” to takeovers – the main route out of PPF for better-funded plans was a deal with an insurer, which was typically more expensive for the plans but meant members' pensions were lower. Fully insured.
“We are confident that transferring members’ benefits to Clara provides the best outcomes available to them,” said Mark Cliffe, head of trustees at Debenhams Retirement Scheme.
The pensions regulator was consulted as part of the deal. Mel Charles, interim chief executive of Frontline Regulation, said: “Superfunds can provide more security, better governance and better risk management, meaning pension savers are more likely to get their promised benefits. We want to see fewer pension schemes It is larger and well managed and we are happy to see the market innovating and promoting the interests of savers.
