The Pension Protection Fund (PPF) has announced that it would be “well placed to take on [an] additional and separate function of public sector consolidator” in its response to the UK government’s consultation on the future of defined benefit (DB) schemes, which closed earlier this week.
The consultation, introduced by the chancellor of the exchequer Jeremy Hunt in July, sought input fromt he pensions industry on how DB pension schemes and the PPF could support greater productive investment in the UK.
In its response, the PPF highlighted that the current framework doesn’t support DB schemes to substantially increase their allocations to productive finance assets.
To achieve the government’s aim at scale, the fund said that fundamental changes to DB investment objectives will be needed.
It suggested that this could require consolidating schemes together in a public sector consolidator, which, it said, would be able to invest for growth over time with professional investment management and would lead to greater productive finance allocations while providing security for members.
It set out how a public sector consolidator could be set up and added that the PPF would be “well placed to take on this additional and separate function should this be the government’s preferred solution”.
The Pensions and Lifetime Savings Association (PLSA) said that if the PPF is given such role, it should only operate for parts of the market, for example, smaller schemes that cannot easily get a buyout or buy-in solution from an insurer or cannot move to a DB mastertrust.
However, it agreed that if further market analysis indicates this type of vehicle is necessary and viable it should also set up a separate fund and operate independently from the current PPF “to avoid inappropriate cross-subsidy between schemes and members”.
LCP, meanwhile, called for the introduction of a new opt-in regime for sponsors of well-funded schemes which would provide full protection for member benefits through the PPF. It said that this would require DB schemes to pay additional PPF ‘superlevy” which would ensure 100% of member benefits were protected in the event of sponsor insolvency.
Kate Jones, chair of the PPF, said: “With almost £1.5trn in invested assets, defined benefit schemes could play a major role driving greater productive investment in the UK economy whilst securing good member outcomes.
“However, this is unlikely to happen under the current framework – a step change will be needed in the DB market to deliver this.”
Oliver Morley, the PPF’s chief executive officer, added that to achieve the government’s goals at scale, consolidation must be an integral part of the solutions.
He said: “We believe the public sector consolidator option could substantially deliver against the government’s objectives, complementing existing commercial solutions, and we’d be well placed to run such a fund.”
Morley added that running a public sector consolidator would be a “natural evolution” of the PPF’s existing capabilities.
He added that through PPF’s investment approach, it already provides a blueprint for how the government’s objectives can be delivered at scale.
He continued: “We’re a major buyer of UK gilts, invest heavily in productive assets and, by investing for growth over the long term, we’ve delivered greater security for our members.”
Morley said that the PPF will engage further with the government and industry on this call for evidence over the coming months, and will continue to deliver on its existing role for its current members and levy payers.
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