Britain’s company pension schemes, grappling with ageing former employees and low investment returns, may start to transfer their assets into new so-called superfunds in the coming weeks, according to people involved in the process.
There are around £2 trillion (€2.3trn) in more than 5,000 UK private defined benefit or final salary pension schemes. Nearly two-thirds are in deficit, putting a burden on companies looking to strike merger deals or restructure debt.
Although most companies have closed these generous pension schemes to new members, they still need to pay them to long-serving or former employees. Firms with large pension deficits include former UK nationalised industries such as British Airways and BAE Systems.
The problem is Europe-wide, as people live longer and years of central bank quantitative easing have depressed interest rates, leading to gaps between the fixed sums the pension schemes pay out and the income they receive from their investments. But through superfunds, Britain has come up with a new way for companies to get those pensions off their books.
The superfunds are designed to consolidate billions of pounds in collective assets from various company schemes, aiming to benefit from economies of scale and manage the money more efficiently.
The first deals will be small, but the superfunds are aiming to manage billions of pounds in assets.
The Pension SuperFund, founded by industry veteran Edi Truell, and Clara Pensions, whose chief executive is former hedge fund manager Adam Saron, both have deals under review by the UK Pensions Regulator, said the firms, without naming the company schemes.
The Pension SuperFund told Reuters it expected a £10m “seed” deal to launch in the next few weeks. “The first deal is absolutely tiny, it ticks all of the boxes,” said Mr Truell. “Everybody is trying to make sure we set the right precedent.”
He added that the superfund had drawn interest from pension schemes collectively managing £60bn.
Clara Pensions said it had conversations with more than 60 pension schemes totalling £15bn in liabilities and it would be “very happy” if its first deal launched in the third quarter. The deal would total less than £100m, said Mr Saron. The UK Pensions Regulator declined to comment on the proposed deals.