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Members of Debenhams pension plan to have their benefits restored

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Thousands of members of the pension plan of collapsed retailer Debenhams are to have their retirement benefits restored under a groundbreaking deal for the UK’s nascent “superfund” market.

More than 10,000 members of the Debenhams pension plan were transferred to the UK’s pension protection scheme in 2019, following the collapse of the 240-year-old retail group. The so-called pensions lifeboat takes over the assets and liabilities of failed companies’ pension schemes.

But thousands of former Debenhams employees subsequently suffered cuts to their expected retirement benefits under the Pension Protection Fund’s reduced compensation terms.

In the first deal of its kind, to be announced on Thursday, the Debenhams scheme is to be transferred out of the lifeboat scheme to Clara Pensions, a new commercial pension “superfund” operator.

So-called superfunds have emerged as a cheaper option for employers looking to offload pension plans without paying a premium for a full insurance buyout. However, growth of the superfund market has stalled largely because of concerns from the insurance sector about superfunds being more lightly regulated than competing insurers.

The Bank of England’s Prudential Regulation Authority, which oversees insurers, previously raised concerns about superfunds and regulatory arbitrage, and said they should only be used as a stepping stone to a full buyout. The Pensions Regulator then issued guidance saying a transfer to a superfund should only be considered if a scheme has no realistic prospect of a buyout in the “foreseeable future”.

The Debenhams deal has been made possible largely thanks to a substantial recent improvement in funding positions for defined benefit pension schemes, which promise members a pension for life — typically based on salary and length of service.  

The trend has been driven by the rise in interest rates driving down the cost of pension liabilities.

“This is another landmark day for British pensions and I would like to offer a warm welcome to the 10,400 members of the Debenhams Scheme,” said Simon True, chief executive officer with Clara Pensions, which did its first transaction last year with a corporate pension plan that was not in the protection fund.

Under the Debenhams deal, Clara will take over the scheme’s £600mn in assets and invest them, with the goal of driving enough returns so the scheme can afford a full buyout with an insurer in five to 10 years, said Clara.

As part of the transaction, Clara pledged to inject £34mn in new capital to underpin the scheme’s investment journey to buyout. 

Members will also receive 100 per cent of their promised pensions in retirement with Clara also promising to make £4mn in back-payments to members who received reduced pensions during the scheme’s time in the lifeboat.

Prior to the arrival of Clara — which describes itself as “a bridge” to buyout — the main route out of the PPF for better-funded schemes was a deal with an insurer, which was typically more expensive for plans but meant members’ pensions were fully secured.

Mark Cliff, chair of trustees for the Debenhams Retirement Scheme, said: “We are confident that transferring members’ benefits to Clara provides the best available outcome for them.”

The Pensions Regulator was consulted as part of the deal. Mel Charles, its interim executive director of frontline regulation, said: “Superfunds can offer increased security, improved governance and better risk management, which means that pension savers are more likely to get their promised benefit. We want to see fewer, larger, well run pension schemes and are pleased to see the market innovate and consolidate in savers’ interests.”

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