DB Pension Consolidation · 2019. 8. 9. · The development of auto-enrolment. Co. llective Defined...

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DB Pension ConsolidationWhat is consolidation?

OPA

18 | July | 2019

Clara | Member First

The development of auto-enrolment

Collective Defined Contribution schemes

Regulatory regime – powers, dashboard

Consolidation

Current pension themes

Copyright ©2019 Clara Pensions |

DB Pension ConsolidationWhat does it Mean?


New Pension Trust | Sectionalised or Pooled

New Independent Trustees

Existing Trustees

Pension Scheme A

New Capital | Sectionalised or Pooled

Sponsor has fulfilled its pension obligations and can

focus on the future of its business

Members have a safer pension today

DB Pensions Consolidation

We need safer pensions

Consolidation part of the answer

Clara is Member-First

Clara is a Bridge to Buy-out

Clara | Member-First | Bridge to Buy-out


Value of Consolidation


The value of ConsolidationWho ensures pension promises are delivered?


Trustees – Pension schemes are not run by employers | Legal duty to deliver promised pensions to members | Framework of advisors and service providers

Funding – A separate pot of assets set aside to fund pension promises | Expectation that value of those assets will reflect promises made | Reliance on valuations and recovery plan

Wider corporate groups? – Pensions Regulator has some powers to ‘look through’ the corporate structure to ultimate owners and connected parties

Pension Protection Fund – A safety net in the event that the above fails

Sponsors – A requirement that they support and fund their pension schemes | Pension scheme a creditor in insolvency | Dependency on ability to pay

Paying benefits forever? – Defined benefit pension promises are made over long (and getting longer) time horizons | Often a promise to a previous generation of staff

The Value of ConsolidationWhat’s the Issue?

|

DB Pension Deficit

£584bn

DB Pension Assets

£1,573bn

Copyright ©2019 Clara Pensions DB Deficits Total value 2018 valueDB PromisesSources: PPF Purple Book, 2018LCP Buy-out market analysis, PPF Annual Report & Accounts 2018

£2,157bn | The DB Pension Promise

Buy-ins and Buy-outs2007-2018~£110bn

Insured Consolidation

PPF claims2004-2018

~£30bn

Consolidator of Last Resort

What about the other pension schemes and their members?


The Value of ConsolidationWhat’s the Issue?

Num

ber o

f sch

emes

Aggregate scheme assets (£tn)

The Value of Consolidation

Uncertain outcomes for members

Copyright ©2019 Clara Pensions

1No affordable options for

most sponsors to fulfill pension obligations

2Large number of small

schemes

3

|

What’s the issue?

Most members will receive their promised benefits in full

- many won’t. Whether a member does depends on

the survival of the employer and the funding of their

scheme.

Buy-out is the ‘gold standard’ but it is unfortunately the

‘1% solution’. Most schemes can’t afford or are too small

to buy-out. This means extended risk for members.

36% of DB pension schemes have less than 100 members;

80% have less than 1,000. Inefficiency means higher

costs.

The Value of ConsolidationHow did we get here?

|

Bank Buy-outs

Public LaunchMar-18

Buy-Out MarketEstablished(2006)

Buy-out Market continues to grow. 2018 a record year

Pensions Act 2004

Financial CrisisPensions Stagnation(2008-2015)

DB TaskforceOct-16

Green Paper Feb-17

White Paper Mar-18

Consultation Dec-18

Clearance GuidanceDec-18

2004

2005

2006 2007

2008

2009

2010 2011

2012

2013

2014

2015

2016

H1-2017

H2-2017

H2-2018

H1-2018

H1-2019


What Next for Consolidation?

Consultation Consultation launched 7 December 2018 Consultation closed 1 February 2019 Significant policy engagement continues

Clearance

Guidance for Consolidators, Trustees and Sponsors provided 7 December 2018

Consolidators and transactions to seek clearance First transactions at end 2019

Legislation Pensions Act 2019/20 Expected in Queen’s Speech in the autumn (?)

Key Milestones in 2019


Different Models of Consolidation


Different Models of ConsolidationA Wide Range of Options

PPF Single Scheme Shared Services Asset Pooling Combined

GovernanceConsolidation Buy-out

Covenant

Trustees

Asset Manager

Advisers

Administrator

Benefit Compromise

Covenant Replacement

1DB LGPS Master Trust(TPT)

Multi-employer(Railpen)

CompulsoryConsolidation

Voluntary Consolidation


Different Models of ConsolidationConsolidators are Pension Schemes | Scheme Assets Protected by Trustees | (Not to Scale)

Capital+

Assets+

LiabilitiesScheme Assets

Liabilities

Capital


Board of DirectorsSponsor

Independent Trustees

Pensions | 2x Balance Sheets | 2x Governance Insurance | 1x Balance Sheet

Scheme Assets

Liabilities

Covenant

Trustees

Board of DirectorsClara

Board of DirectorsInsurer

Stand Alone Scheme

Clara Insurer

Clara’s Answer


Clara’s Answer

Security for Members


1Certainty for Sponsors

2Professional scheme

management

3

|

The Member-First Model | Bridge to Buy-out | Aligned Interests

Clara ensures that members have a higher chance of receiving their promised

benefits in full – an uncertain employer covenant is

replaced with a certain capital buffer.

Employers have an incentive to provide additional funding

now to secure member outcomes. Certainty allows

sponsors to focus on the future of their businesses.

Bringing schemes together creates efficiencies and

benefits of scale. Costs come down and new opportunities

are available.

Clara | Member FirstKey Themes in Client Discussions

| Copyright ©2019 Clara Pensions

Corporate Restructuring Pension scheme inhibiting a transaction Asset sale generates funding for pension scheme Private Equity acquiring or disposing of an asset

Change in management team Overseas parent Accelerate fulfillment of pension obligations

Generally well-funded schemes Key risk is sponsor insolvency before buy-out Retain benefit of existing or proposed buy-in

Sponsor Driven

Trustee Driven

Clara is engaged in ongoing discussions with more than 50 schemes

Nine Examples

Clara | Member FirstBulk Transfer | Clara Pension Trust | Sectionalised


Clara Pension Trust | Sectionalised

Clara Trustees

Bulk TransferWithout Consent

Member First

Replication of Benefits

Clarity of Funding

Consistency of Funding – unchanged by future transactions

No Cross-subsidy

Insulation from Legacy Problem

Accept Buy-ins

Facilitate Sponsor Support

Reduce Risk to PPF

Existing Trustees

Pension Scheme A Section A

Clara Employer

A

ContingentAssets

A

Section B

Clara Employer

B

ContingentAssets

B

Section C

Clara Employer

C

ContingentAssets

C

Sectionalisation Benefits

Clara | Member FirstThe Clara Model | A Safe Pension Today

Clara TPsSustainable

Full Asset StackBuy-out

Scheme Liabilities

Scheme Assets

Contribution Reserve

Capital

Clara Capital Transferring SponsorCopyright ©2019 Clara Pensions | Source of Funds:

Scheme Actuary

Administrator

Board of Directors

Fiduciary Manager

Independent TrusteesClara Management

Resources Section | Well Funded Governance

Scheme Assets

Clara | Member First

Scheme Liabilities

“Funded” to Buy-Out | Securing Members’ Benefits

Clara TPs

Standalone TPs

Scheme Assets

Buy-out @ T0

Standalone Scheme

Scheme Liabilities

~Gilts + 60

Scheme Assets

T0Consolidation into Clara

Sponsor Funding

Contribution Reserve

Capital

Clara CapitalTransferring SponsorCopyright ©2019 Clara Pensions | Source of Funds:

Clara | Member FirstEnhanced Security | Fully Funded and Low Risk Journey to Buyout

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

100

120

140

160

180

200

220

240

Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

£ m

illio

n

Axis Title

Scheme Assets Contribution Reserve Capital Buy-out Price IRR (RHS)

Year 7Return on capitalAfter full buy-out

Day 1 Funding improved to

100% of buyout

JourneyFully funded covenant

Low risk investment strategy

Year 7Buy-out of Full Benefits


Clara’s AnswerTrustees and Non-executives

Lawrence Churchill, CBENon-executive ChairmanFormer Chair: PPF | NEST | FSCS

Gill TaitNon-executive DirectorHuman Resources Specialist

Clara-Pensions Limited | Directors Appointed

Alan Pickering, CBEBESTrustees LimitedChair of Trustees

Michael ChattertonLaw Debenture

Frank OldhamITS Limited

Clara Pension Trust | Trustees Appointed

Steve GrovesNon-executive DirectorFormer CEO Partnership Group


Clara’s AnswerThe Clara Model | A Well-run, Well-funded Pension Scheme


Member First – Securing members’ full benefits takes priority over returns. A supportive and engaging member experience is our operating model.

Safe Pensions – The Clara Pension Trust is a well-funded scheme; with a strong, independent board of trustees; and supported by highly credible administration, actuarial, investment and legal advisers.

Management Team – Trustees and members have the support and focus of a full-time management team, whose interests are aligned with members. The team is being built for scale.

Strong Governance – Both the Trustee and Corporate Boards are ready for scale today.

Capital – Each section is supported by funded, permanent and patient capital. Our capital provider is seeking modest returns after members’ benefits are secured.

Bridge to Buy-out – Clara is a safer, more efficient journey to a fully insured future for members. Capital and scale make buy-out a reality for schemes where it is out of reach today.

Clara | Member FirstEnhanced Security | Throughout the Journey to Buy-out

Member First

Bridge to Buyout

Funded Capital

No Release Valve


Sectionalisation

Different Models of ConsolidationCompeting Models Offer Choice | But Differences are Important

Bridge to Buy-out

Strong, Independent Governance

Funded Capital with no Release Valve


Sectionalisation

Open-ended Run-off Fund

Independent Trustees

Continuous Profit Extraction

Single Pool

Clara | Member-First Investment Driven Solutions

What Clara means for Members


Member Experience

Digital First

High-quality engaging service | Learning from ‘Open Banking’

Clear concise and jargon-free communicationsModern and easy to use portal | Link to Dashboard and other services

Making DB pensions easier to understand and building a Clara community

Clara Member Engagement | Bringing Pensions into the 21st Century


Conclusions


A Vision for the Future

Protecting Members Removes the risks of employer insolvency Brings forward scheme funding Enables the journey to buy-out

Protecting the PPF Buffer of external capital protects PPF Clara sectionalisation avoids concentration Triggers set to ensure no claims on PPF

Protecting the Public Removes the risks from employer insolvency Fewer members falling into PPF

Protecting Business Release employer to focus on future of business Consolidation brings together investable assets

A Safer Pension Today | Consolidation can Improve Member Outcomes


Clara

We need safer pensions

Consolidation part of the answer

Clara is Member-First

Clara is a Bridge to Buy-out

Safe Pensions | Member First | Bridge to Buy-out


Important NoticesConfidentiality and Eligibility

These slides are in draft form, are provided for information only and are being furnished on a confidential basis. They should not be relied upon for any purpose. Nor should they be reproduced, distributed or otherwise disclosed to any other person or published, in whole or in part, for any purpose.These slides relate to a business proposition which has not yet been finalised. They do not comprise or contain an invitation or inducement to engage in any form of investment activity but, in any event, these slides are only directed at (and must only be viewed by): (a) persons of the kind described in articles 19, 48, 49 (2), 50 and 50A of the Financial Services and MarketsAct 2000 (Financial Promotion) Order 2005; or (b) any other persons to whom these slides may be lawfully communicated. Distribution of these slides may be restricted in jurisdictions outside the UK. Anyone who receives these slides must observeall legal and regulatory requirements in the relevant jurisdiction. These slides may contain forward-looking statements, which relate, inter alia, to the proposed strategy, plans and objectives of the company. By their nature, such forward-looking statements require the company to make assumptions that may or may not materialise.

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DB Pension Consolidation · 2019. 8. 9. · The development of auto-enrolment. Co. llective Defined...

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