Ministers discuss reorganization of lifeboat pension fund to boost business

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Ministers are considering a radical reform of the fund that protects savers in company pension plans which could transform it into a vehicle capable of investing tens of billions of pounds in British companies.

Proposals before ministers could see the government-backed Pension Protection Fund, which has £39bn in pension assets, given an extended mandate to take on ailing corporate ‘defined benefit’ pension schemes, according to people briefed on the matter.

Currently, the PPF has a narrow role in providing a safety net for pension schemes when their employer goes bankrupt and cannot fully meet members’ pension payment promises.

However, proposals being considered by the Treasury would see the PPF’s mandate broadened so that it has a more active role in taking on company pension schemes that have not failed, with the move potentially unlocking tens of billions of pounds for investment in the UK United.

Jeremy Hunt, the chancellor, is considering the proposals as a way to channel more pension money held in defined benefit schemes into start-ups and fast-growing businesses, as well as halt the The decline of the City of London as a venue for initial public offerings by businesses.

People briefed on the proposals said that there would be no obligation, but that smaller, lower-performing defined benefit schemes could apply to be taken over by the PPF.

This would allow them to benefit from scale, better governance and investment expertise, rather than waiting until they ended up in the PPF anyway after failing. The proposals, still at an early stage, would require primary legislation, a cabinet insider said.

There are currently around 5,100 private sector defined benefit pension plans in the UK, with assets of around £1.4 trillion.

The recent rise in interest rates has increased funding for most schemes, but according to PPF analysis there is a substantial minority that are in deficit.

Steve Webb, a former minister and partner at LCP, an actuarial consultancy, said if troubled pension schemes could be transferred to the PPF without first failing, it could lead to the transfer of “tens of billions of assets” to the fund.

“With more than a trillion assets in the UK’s defined benefit space, such an asset transfer would be possible,” he added.

However, Webb said PPF has made its own investment decisions, even though it is a statutory public company answerable to parliament.

“If the government wanted to direct investment strategy, it would have to change the rules for the PPF to do so,” he added.

The PPF revamp is one of several options the Government is considering as it looks for ways to ensure tens of billions of pounds of pension investment goes to boost UK businesses and help in the transition to a green economy.

Over the past two decades, UK pension and insurance funds’ holdings of UK listed companies have plummeted from around half of their portfolios to 4 per cent, according to data from consultancy Ondra Partners. Meanwhile, their fixed-income holdings have increased from 17% in 2000 to 72% in 2022.

This shift in asset allocation was driven in part by an accounting change in 2000 that forced companies to recognize pension fund deficits or surpluses on their balance sheets.

A Government spokesperson said: “We are determined to increase investment in the UK’s high-growth sectors, ensuring that our most forward-thinking companies can access the finance they need to expand and list in the UK.

“Unlocking the billions of pounds held in pension schemes across the country is the key to channeling capital into productive assets so that it benefits both business and pensioners, fueling economic growth and boosting the retirement income of millions of savers.” “.

The PPF was contacted for comment.