Pensions auto-enrolment: Understanding your responsibilities
DB Pension Consolidation · 2019. 8. 9. · The development of auto-enrolment. Co. llective Defined...
Transcript of 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
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DB Pension ConsolidationWhat does it Mean?
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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
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Value of Consolidation
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The value of ConsolidationWho ensures pension promises are delivered?
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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?
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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?
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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
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1No affordable options for
most sponsors to fulfill pension obligations
2Large number of small
schemes
3
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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?
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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
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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
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Different Models of Consolidation
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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
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Different Models of ConsolidationConsolidators are Pension Schemes | Scheme Assets Protected by Trustees | (Not to Scale)
Capital+
Assets+
LiabilitiesScheme Assets
Liabilities
Capital
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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
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Clara’s Answer
Security for Members
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1Certainty for Sponsors
2Professional scheme
management
3
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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
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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
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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 Page 19 | 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 Page 20 | 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
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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
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Clara’s AnswerThe Clara Model | A Well-run, Well-funded Pension Scheme
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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
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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
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Sectionalisation
Open-ended Run-off Fund
Independent Trustees
Continuous Profit Extraction
Single Pool
Clara | Member-First Investment Driven Solutions
What Clara means for Members
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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
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Conclusions
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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
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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
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