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The UK Pensions Lifeboat Fund is working to become a consolidator of corporate retirement plans, a move it believes could bring “substantial” new investment into the economy.
In a report to the government on Tuesday, the Pension Protection Fund said a “step change” was needed in markets if ministers wanted to release money held by pension funds into the economy. The PPF is a statutory fund established in 2005 and is worth around £33 billion.
Currently, the PPF’s role is solely to compensate members of failed private-sector “defined benefit” pension schemes, of which there are 5,200 in the UK, with around 10m members.
But because of its size, the fund has a higher allocation to so-called productive financial assets than most “closed-ended” corporate DB schemes whose rules encourage trustees to invest in lower-risk areas such as bonds and cash to secure pension commitments get cashed.
About 30% of Lifeboat’s portfolio is in riskier sectors such as private equity, private credit and infrastructure.
In House of Change reforms unveiled in July, Chancellor of the Exchequer Jeremy Hunt announced a series of reforms aimed at reviving the UK economy by directing pension savings to high-growth businesses.
Responding to a call for evidence, the PPF said: “Consolidators aiming to invest in medium to long-term growth through scale and professional asset management will lead to a greater allocation of productive finance while providing security to members.” Encouraged DB plans to increase Ways to invest and help the economy grow.
The fund believes its role should expand to be able to manage a healthy DB program, which it believes could free up substantial cash for productive financing.
“Increased investment in productive assets . . . requires a fundamental change in the objectives of corporate DB programs,” the PPF said in its submission. “We don’t think this can be achieved to any significant degree within the current framework.”
The PPF added that changes to the pension system were “necessary” to free up cash for investment, in particular “severing the link between sponsoring employers and their retirement plans”, which encouraged most plans to minimize their return risk.
Since its launch in 2005, PPF has undertaken 1,000 DB schemes after sponsoring employers went bankrupt. It currently has around 300,000 members and pays out £1.2bn to members in 2022-23. It protected an additional 9.6 million DB plan members who had not yet failed.
The proposal for the fund comes after the Tony Blair Institute for Global Change said in May that expanding the role of lifeboats could help free up up to £100bn of pension cash for the economy.
Hunt is expected to set out his response to a series of consultations on pension reform in his autumn statement on November 22.
The private pension sector reacted cautiously to the PPF proposal.
“Our preliminary view is that, given the recent positive changes in funding levels for the DB scheme, and our belief that (commercial) super funds will provide a very effective private sector solution, it is premature to establish a public consolidation body,” the agency said. Pensions and Life Savings Association, the trade body representing workplace pension funds.
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