Milestone moment as Clara completes latest superfund transaction – What next for this burgeoning market?

A key milestone for Clara

With the recent announcement of their “connected covenant” transaction, Clara has now completed deals across the full range of its market offerings – a landmark moment for both Clara and the DB superfund market more broadly.

Following the first case for the Sears Scheme, we then saw the PPF+ case for Debenhams followed by the Wates transaction and most recently the connected covenant transaction.

Each of Clara’s four completed transactions marks an important milestone – both in terms of proving its model and paving the way for greater innovation in the DB endgame space.

We expect that the proposed relaxation of the superfund gateway tests through the Pension Schemes Bill 2025 combined with greater competition from new DB superfund entrants, will give rise to further momentum in this market as an alternative to insurance for schemes which are underfunded on buy-out.

Sponsors and Trustees of schemes with a buy-out deficit should be actively considering whether a superfund transfer may deliver benefits for their members and meet their wider objectives, as compared with the alternative endgame options available to them. With further expected improvements in superfund pricing, with new entrants and enhanced competition, the reduction in timescales for risk transfer via a superfund as compared to insurance may be material for some schemes – leading to an important decision for sponsors and trustees on whether to remain in the occupational DB scheme regime or to transfer to insurance. It will be fascinating to see how this market evolves in the coming 12 to 24 months – we are at a critical point and the completion of Clara’s four transactions appears to just be the start!

A brief timeline of Clara’s four completed deals

The first Clara transaction completed in November 2023 for the Sears Scheme. This was the first superfund transaction to be cleared by TPR and demonstrated a workable pathway for future transactions. This was the long-awaited “proof of concept” the superfund market needed.

The Debenhams transaction followed in April 2024 – a PPF+ case which saw members move from PPF compensation level to full scheme benefits within Clara. This was a powerful statement of the potential for DB superfunds to improve member outcomes, demonstrating Clara’s role as a real alternative for schemes previously destined for the PPF.

The Wates transaction in December 2024 marked the first for a non-distressed, ongoing sponsor – with the employer making a material contribution to meet Clara’s transfer price and improve member security. LCP led the transaction advice to the trustee for this ground-breaking deal which demonstrated that a DB superfund is now a viable alternative exit option for a much broader range of schemes, and was widely seen as a catalyst for DB superfund market growth. 

And, just last month, Clara announced the first “connected covenant” transaction with the Church Mission Society, which was also their first with a not-for-profit sponsor. Under this model the members transfer to Clara (in the same way as other transactions) but the sponsor provides a continuing contingent guarantee to the relevant section of Clara. At £55m, this transaction was the first Clara deal in the sub-£100m market and the first to demonstrate the viability of Clara’s the connected covenant approach.

A whole new world of DB endgame options

Alongside the proof of concept for Clara’s current offerings across the breadth of scenarios of these four deals, we have had further positive developments for DB superfunds in recent months with:

• a formal legal framework for superfunds in the Pension Schemes Bill 2025 which includes relaxations to the “gateway” tests that DB pension schemes need to meet to obtain “clearance” from the Pensions Regulator for a superfund transfer – any scheme in a buy-out deficit can consider superfunds as a potential end game options  and thereby opening up a £600bn superfund market.
• public statements from DWP that they want to see the DB superfund market 'thrive.'
• statements the Pensions Regulator aimed at dispelling the “misconception that they will not provide clearance [where a] scheme has on-going sponsor support” and generally being more positive about DB superfunds than they have publicly been in the past.

We are fully expecting these developments to lead to continued innovation in this space as more schemes explore the art of the possible of how DB superfunds could fit into their strategy.

We also expect to see DB superfund new entrants join  the market in the coming months, expanding competition beyond just Clara and widening the DB superfund options available for trustees. To the extent that these new entrants offer an alternative run-on model (rather than Clara’s approach of  targeting buy-out), this may offer an alternative approach via the superfund market to achieve scheme objectives.

It will be exciting to see how this market evolves and the further innovation we will see, particularly in light of the other key easements in the Pension Schemes Bill in relation to DB surplus release. For example, will some schemes wish to explore a DB superfund transfer as part of maximising the surplus they have available to improve member benefits (and/or return funds to the sponsor)?

Navigating through an expanding set of options

With all this change, what remains constant is the need for trustees and sponsors to assess the full range of options available.

What is right for any given DB scheme will depend on many factors, including the scheme’s funding level and covenant support, alongside trustee and sponsor attitudes to risk and the level of any potential upside and the uncertainty around this. We have helped many of our clients navigate strategic discussions to determine the right option for their circumstances. Some have landed with a “run-on” approach, others have pursued insurance, and some have decided on a superfund transfer.

These are exciting times. With new options and opportunities, and I am looking forward to supporting trustees and sponsors with the strategic thinking needed to deliver security for members and ultimately better member outcomes.