Ministers to consider overhaul of pensions lifeboat cap to boost business

Ministers are considering a sweeping reform of the fund, which protects savers in company pension schemes, and could turn it into a tool to invest tens of billions of pounds in UK businesses.

According to proposals submitted to ministers, the government-backed Pension Protection Fund, which has £39 billion in pension assets, could be given extended powers to take over ailing corporate “defined benefit” pension schemes, according to information on the matter.

Currently, the PPF has a limited role in providing a safety net for pension schemes when their employer fails and cannot fully meet the pension payment promises to members.

However, proposals being considered by the Treasury would extend the PPF’s powers, giving it a more active role in taking on non-bankrupt company pension schemes, a move that could free up tens of billions of pounds to invest in the UK.

Chancellor Jeremy Hunt is looking at proposals to channel more pension money held in benefit schemes into start-ups and fast-growing businesses, and to halt the decline of the City of London as a venue for initial public offerings. companies.

When informed of the proposals, they said that there would be no compulsion, but that smaller, lower-performing benefit schemes could request that the PPF take them over.

This would allow them to benefit from scale, better management and investment expertise, rather than waiting to go into the PPF after failure. The proposals, which are still in their early stages, would require primary legislation, a government insider said.

There are currently around 5,100 private defined benefit pension schemes in the UK with around £1.4 billion in assets.

The recent rise in interest rates has increased the financing of the majority of programs, but according to PPF analysis, a significant minority of them are in deficit.

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

“With more than a trillion assets in the UK defined benefit area, this type of asset transfer would be possible,” he added.

However, Webb said the PPF made its own investment decisions despite being a statutory public company accountable to parliament.

“If the government wanted to control the investment strategy, it would have to amend the PPF rules,” he added.

The overhaul of the PPF is one of several options the government is considering as it looks for ways to ensure tens of billions of pounds of pension investment are used to boost British companies and help the transition to a green economy.

According to the data of the consulting company Ondra Partners, in the last two decades, the share of British pension and insurance funds in companies listed on the British stock market has fallen from about half of their portfolio to 4 percent. Meanwhile, their fixed-interest holdings increased from 17 percent in 2000 to 72 percent by 2022.

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

A government spokesman said: “We are determined to increase investment in the UK’s high-growth sectors, ensuring our cutting-edge businesses can access the funding they need to grow and list in the UK.

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

The PPF has been approached for comment.