Clara Pensions, the British pension superfund, celebrated its first anniversary of completing the assessment process for defined benefit consolidators in the U.K. by the country’s Pensions Regulator. Life Risk News’ Greg Winterton spoke to Ashu Bhargava, Chief Origination Officer at Clara Pensions, to discuss the organisation’s first year since completing assessment, the outlook for 2023 and the broader pension risk transfer market.
LRN: Ashu, first of all, happy anniversary. Tell us about Clara Pensions’ first year post-regulatory sign-off: what have been some of the things that went smoothly, and some of the things that perhaps didn’t go as smoothly as you had hoped?
AB: 2022 has been a significant year for Clara. Following our first important milestone of completing the rigorous TPR assessment process at the end of last year, we have been focused on transactions. It’s really important that we’re turning the potential provided to us by assessment into delivering for members and we’re excited to be progressing steadily with our first transactions.
We have spent the year working with a range of potential transactions at different stages and we’ve also continued to build the team to make sure we’re ready to take on our first members.
However, 2022 hasn’t been without its challenges. The volatile economic environment has impacted the whole market and has meant that we’ve seen some potential transactions fall away, but we have a very strong pipeline and look forward to completing our first transaction soon.
LRN: Back in May, Clara Pensions committed to ensuring its investment portfolio delivering net zero emissions by 2050. Why was this important to Clara to do now, when arguably you’re still at the starting blocks stage of your journey?
AB: Clara is all about delivering long term commitments, an approach which stems from our commitment to being ‘member-first’. As a new business without existing assets and liabilities, we have been able to start from a blank sheet of paper as an asset owner. This means we’ve had a real opportunity to set our direction from Day 1 in a way that best meets the needs and expectations of our future members. Our environmental commitments are a clear part of this, and it was right to make the first Net Zero commitment at the beginning of our journey.
LRN: A rising interest rate environment – like the one we’re in now – means that the general funding levels of defined benefit pension schemes is improved. Have you seen an increase in DBPs coming to Clara to discuss consolidation in recent months because of the macroeconomic environment and if so, are these conversations exploratory or are the pension plan sponsors pretty clued up and are looking to accelerate their timelines?
AB: Ultimately, improved scheme funding is good news for members and sponsors. As a result of rising interest rates, we are seeing a range of different changes in funding – for example, some schemes which removed hedges during September now have worse funding, while those who retained hedges haven’t seen their funding levels move, and many others have experienced improved funding.
Improved funding often brings an opportunity to look at a pension scheme and the right endgame for it, and we’re having lots of conversations with schemes, including those that are exploratory and those that are more developed. However, it’s not just about scheme funding. The worsening economic outlook for sponsors is driving trustees to think about their current pension position and whether a transfer to a superfund would be the right solution, to ensure security for members whilst also freeing up the sponsor company to focus on running their business.
LRN: The U.K. Government recently published its response to its consultation on Solvency II reform. Whilst there’s still much more to come in terms of legislation and the PRA getting involved, what’s your view on the impact of the potential SII reform on the PRT market more broadly and Clara’s activities in the space?
AB: Clara has a bridge to buyout model so naturally we are interested in seeing how Solvency II evolves. It is currently unclear what these changes mean for insurer pricing as against capital requirements, but the bulk purchase annuity market is already a very successful one as it gives space for both insurers and consolidators to offer different options to sponsors and trustees to improve member security. We are therefore confident that while the potential Solvency II reform may alter the type of schemes we are talking to, it will not impact the need for consolidation and an alternative to an insured buyout.
LRN: Finally, Ashu, what can you share with us about Clara’s plans for 2023? Any specific goals or targets in mind?
AB: We are making great progress on our first transactions, and we remain on track to deliver £5 billion in transactions by 2025. We will continue to be led by trustee and sponsor needs and look forward to welcoming our first members.
Ashu Bhargava is Chief Origination Officer at Clara Pensions
