SPP urges consultation on future use of PPF reserves as DB funding positions continue improving.
The Society of Pension Professionals (SPP) has called for a full government consultation with industry stakeholders on the future role of the Pension Protection Fund (PPF) and the use of its £14bn (€16.1bn) reserves.
In a recent paper – From lifeboat to legacy: What next for the £14bn PPF reserves? – the SPP said the pensions landscape has changed significantly since the PPF was established in 2004, with defined benefit (DB) schemes generally better funded, employer insolvencies lower, and the PPF levy reduced to zero.
The PPF’s latest annual report showed it had £31bn in assets, including more than £14bn in reserves above its best-estimate liabilities.
The SPP said policymakers should consider what level of reserves the PPF should hold and how any excess funds could be used in future.
The paper outlines several possible uses for the reserves, including:
- enhancing member compensation through higher pension increases and easing benefit reductions;
- returning funds to levy-paying employers;
- retaining reserves as a long-term financial buffer;
- supporting a public DB consolidator;
- establishing a universal collective defined contribution (CDC) scheme open to employers and pension savers at retirement; and
- supporting wider public policy goals, including retirement adequacy and UK-focused investment.
The SPP said any use of the reserves would need to balance fairness, prudence and the PPF’s statutory purpose.
It warned that using the funds could raise legal, operational and moral hazard concerns, while retaining the entire surplus could also be viewed as overly cautious given the changing risk environment.
The organisation added that any decisions should be backed by actuarial analysis, legal review and consultation with members, employers, trustees and advisers.
Jon Forsyth, chair of the SPP’s DB committee, said: “[T]he £14bn in PPF reserves represents a significant opportunity; it also carries a responsibility to safeguard the PPF’s core mission.
“Striking the right balance between prudence and innovation will be critical as policymakers consider how the PPF can evolve from a ‘lifeboat’ into a broader legacy institution for the UK pensions system.”
A spokesperson for the PPF added: “Protecting our current and future members remains our priority. Maintaining a resilient balance sheet is central to that commitment, ensuring we deliver financial security to members, whatever the future holds.
“As the defined benefit pension landscape evolves, we will continue to work closely with government and stakeholders to ensure members and schemes continue to be safeguarded long into the future.”
