June 9, 2023 12:36 am

Ministers are taking into consideration a sweeping reform to the fund that protects savers in business pension plans that could turn it into a automobile in a position to invest tens of billions of pounds in UK organizations.

Proposals just before ministers could see the government-backed Pension Protection Fund, which has £39bn in pension assets, provided an extended remit to take on struggling corporate “defined benefit” retirement schemes, according to individuals briefed on the matter.

At the moment, the PPF has a restricted function in offering a security net for pension schemes when their employer fails, and can not meet members’ retirement payment promises in complete.

Even so, proposals becoming regarded by the Treasury would see the PPF’s remit widened so it has a far more active function in taking on business pension plans that have not failed, with the move potentially unlocking tens of billions of pounds for investment in the UK.

Jeremy Hunt, chancellor, is examining the proposals as a way of directing far more pension dollars held in defined-advantage schemes into begin-ups and quick-increasing organizations, as properly as halting the City of London’s decline as a venue for initial public offerings by corporations.

Men and women briefed on the proposals mentioned there would be no compulsion, but that smaller sized, poorer performing defined advantage schemes could ask to be taken more than by the PPF.

That would permit them to advantage from scale, superior governance and investment experience, rather than waiting till they ended up in the PPF anyway immediately after they failed. The proposals, nevertheless at an early stage, would call for main legislation, mentioned 1 government insider.

There are presently about five,one hundred private sector defined advantage pension schemes in the UK, with about £1.4tn in assets.

The current surge of interest prices has boosted funding for a majority of the schemes, but there is a substantial minority that are in deficit, according to PPF evaluation.

Steve Webb, a former minister and companion with LCP, an actuarial consultancy, mentioned that if struggling pension schemes could be shifted to the PPF devoid of failing very first, it could lead to “tens of billions of assets” becoming transferred to the fund.

“With far more than a trillion of assets in the UK defined advantage space, a transfer of assets of this sort would be attainable,” he added.

Even so, Webb mentioned the PPF created its personal investment choices, even although it is a statutory public corporation that is accountable to parliament.

“If the government wanted to direct investment approach, it would have to transform the guidelines for the PPF to do this,” he added.

The PPF shake-up is 1 of a number of alternatives the government is taking into consideration as it appears for methods to guarantee that tens of billions of pounds of pension investment goes into boosting UK corporations and assisting with the transition to a green economy.

More than the previous two decades, holdings of UK-listed corporations by British pension and insurance coverage funds have plunged from about half of their portfolios to four per cent, according to information from advisory firm Ondra Partners. Meanwhile, their holdings of fixed earnings have surged from 17 per cent in 2000 to 72 per cent in 2022.

This shift in asset allocation was partly driven by an accounting transform in 2000 that forced corporations to recognise pension fund deficits or surpluses on their balance sheets. 

A government spokesman mentioned: “We’re determined to improve investment into the UK’s higher-development sectors, making certain our most cutting-edge organizations can access the finance they have to have to scale up and list in the UK.

“Unlocking the billions of pounds held in pension schemes across the nation is crucial to channelling capital into productive assets in a way that positive aspects each organizations and pension holders, powering financial development and escalating the retirement earnings of millions of savers.”

The PPF has been approached for comment.

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