Pension Protection Fund pushes for new remit to boost UK investment

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The UK’s pension lifeboat fund is pushing to become a consolidator of corporate retirement plans in a move that it believes could unleash “substantial” new investment for the economy.

In a submission to the government published on Tuesday, the Pension Protection Fund said that if ministers wanted to unleash money held by pension funds into the economy there would need to be a “step change” in the market. The PPF is a statutory fund set up in 2005 and is worth about £33bn.

Currently, the PPF has a remit only to compensate members of failed private sector “defined benefit” pension plans, of which there are 5,200 in the UK, with about 10mn members.

But because of its size the fund has a higher allocation to so-called productive finance assets than most “closed” corporate DB schemes, where the rules have encouraged the trustees to invest in low-risk areas, such as bonds and cash, to ensure pension promises are met.

The lifeboat has about 30 per cent of its portfolio in riskier areas such as private equity, private credit and infrastructure.

In his Mansion House reforms unveiled in July, Chancellor Jeremy Hunt announced a series of reforms aimed at reinvigorating the UK economy by channelling pension savings towards higher growth companies.

“A consolidator — aiming to invest for growth over the medium to long term allied with scale and professional asset management — will lead to greater allocations in productive finance while providing security for members,” the PPF said in its response to a call for evidence on ways to encourage DB schemes to invest more and help grow the economy.

The fund argued that its role should be expanded so that it can manage healthy DB schemes, which it believes could unleash substantial amounts of cash for productive finance.

“Increasing investment in productive assets . . . requires a fundamental change in the objectives of corporate DB schemes,” the PPF said in its submission. “We do not believe this can be achieved to any significant extent within the current framework.”

The PPF added that to unleash cash for investment it would be “essential” to change the pension system, and in particular to “sever the link” between the sponsoring employer and its retirement plan, which encourages most schemes to minimise risk to their returns.

Since it was introduced in 2005, the PPF has taken on 1,000 DB schemes after their sponsoring employers became insolvent. It now has about 300,000 members, to whom it paid £1.2bn in remuneration in 2022-23. It protects a further 9.6mn members of DB schemes that have not failed.

The fund’s proposal came after the Tony Blair Institute for Global Change said in May that an expansion of the lifeboat’s role could help unlock up to £100bn of pension cash for the economy.

Hunt is expected to set out his responses to a series of consultations on pension reforms in his November 22 Autumn Statement.

The private pensions sector responded cautiously to the PPF’s proposals.

“Our initial view is that it is too early to establish a public consolidator, given the recent positive changes in the funding levels of DB schemes and the fact that we believe (commercial) superfunds would provide a very effective private sector solution,” said the Pensions and Lifetime Savings Association, the trade body which represents workplace pension funds.