Up to 2,300 defined benefit (DB) pension schemes could benefit from the additional choice a new public sector consolidator (PSC) would provide, the Pension Protection Fund (PPF) has said, estimating that a new PSC could also ‘unlock’ around £10bn for UK productive finance.

The Department for Work and Pensions (DWP) has been consulting on plans to establish a public sector consolidator operated by the Pension Protection Fund (PPF) by 2026, alongside plans to make defined benefit (DB) surplus extraction easier.

Whilst the DB surplus extraction proposals have been broadly welcomed, industry organisations raised concerns over the government's PSC proposals, with specific concerns raised over the potential impact of a PSC on the insurance and superfund markets, as some questioned whether a PSC was needed.

However, in its response to the consultation, the PPF clarified that despite the welcome increase in the value of buyout deals and the advent of commercial superfunds, evidence shows many schemes don’t have timely access to commercial solutions on reasonable terms, while other, less well funded schemes, remain locked out of the market altogether.

Indeed, the PPF estimated that up to 2,300 schemes with total assets of £130bn serving 960k members may struggle to obtain timely access to an appropriate endgame solution and could benefit from the additional choice the new consolidator would provide.

Despite the competition concerns raised by industry organisations, the lifeboat also stressed that, even at this upper limit of potential eligibility, this constitutes at most 10 per cent of the DB market by members and assets.

This means that insurers and commercial superfunds would continue to serve the bulk (90 per cent) of the DB market.

Furthermore, whilst some have questioned whether a PSC would have any meaningful impact on overall investment in UK productive finance, the PPF argued that a new consolidator could, dependent on scale, help maintain a strong UK gilt market and increase investment in assets which support UK businesses and the economy.

The lifeboat pointed to its existing investment approach and asset allocation as demonstration of the potential approach that could be taken, confirming that the PPF currently allocates around 35 per cent of its current portfolio to gilts and around 30 per cent to productive assets.

Based on this, it estimated that the new, separate, consolidator could, dependent on scale, risk budget and suitable underwriting, potentially allocate around £10bn to UK-growth supporting investments.

Alongside its consultation response, the PPF published a revised proposition, informed by stakeholder feedback, for how the consolidator could be designed and operated, building on the initial views previously shared by the lifeboat.

PPF chair, Kate Jones, stated: “The PPF’s core mission is to protect DB members and, as we look to the future, member interests must remain paramount. To deliver the best possible outcomes for all DB members, choice, and timely, affordable access to endgame solutions is vital.

“Evidence, and stakeholder feedback, suggests more choice in the market is needed to capitalise on this window of opportunity with improved funding levels.

"Our maturity and capabilities mean we can operate this new, separate fund – providing more choice for schemes and a secure home for transferring members – without affecting the continued successful delivery of our existing functions.”

Adding to this, PPF CEO, Michelle Ostermann, said: “International experience shows that pension consolidation can drive better member outcomes and support productive investment.

“There is a big opportunity in the UK to consolidate the highly fragmented DB landscape and make more of the £1.4trn in assets work harder for members and the UK economy. To fully realise the potential of the new consolidator, we believe it should be open to all schemes who, without it, may struggle to get timely access to market solutions.

“We remain confident that a well-designed PPF-run consolidator will complement commercial providers and ultimately support a thriving marketplace which delivers for all members.”

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