Govt reportedly considering extending PPF to struggling DB schemes

Government ministers are reportedly considering changes to the Pension Protection Fund (PPF) that would extend the pensions lifeboat’s remit to struggling corporate defined benefit (DB) pension schemes.

According to the Financial Times, ministers are considering the reforms to help “unlock” 10s of billions of pounds for investment in the UK.

It reported that Chancellor, Jeremy Hunt, is looking over the proposals that would see the PPF taking a more active role in taking on DB schemes that have not yet failed but have stressed sponsoring employers.

A target of the proposal is to direct more pension money into start-ups and fast-growing businesses, and to help halt the decline of London as a venue for initial public offerings by companies, the Financial Times reported.

According to the publication, people briefed on the potential changes said that there would be no compulsion for struggling schemes to be taken over by the PPF, but smaller and poorer performing DB schemes could ask for the lifeboat to step in.

One government minister told the Financial Times that the proposals, which are still at an early stage, would require primary legislation.

A PPF spokesperson said: “The PPF’s future role is a matter for policy makers, but we recognise there are opportunities which could deliver better outcomes for DB scheme members and support the wider economy.

“Given our proven skills and capabilities, including our investment expertise, we stand ready to support government and industry where PPF could form part of the solution.”

Commenting on the reports, LCP investment partner, David Wrigley, said: “This is a fascinating development, and highlights that the mindset across the industry is changing from DB pension schemes being viewed as a problem, to being viewed as an asset.

“These proposals would represent seismic changes to the UK pensions landscape, with far-reaching implications. With scant details on how this would work in practice, there are many more questions than answers at this stage.

“We think that DB schemes now present an opportunity to generate substantial excess assets over the long-term, so the obvious question is ‘who should benefit?’.

“Under these plans, it seems the Treasury stands to benefit. Both in terms of directing investment of large pots of assets, and also presumably with half an eye on an eventual surplus emerging from the PPF.”

Cardano Advisory managing director, Alex Hutton-Mills, added: “The thinking behind extending the remit of the PPF to cover DB schemes with ‘stressed’ corporate sponsors is certainly welcome in an environment with elevated interest rates and inflation, which are increasing the pressure on cash flows of affected businesses.

“A new ‘master consolidator’ in the PPF would provide flexibility for small schemes or ‘stressed’ corporate sponsors of DB pension schemes where the funding can be directed at the investment needs of UK plc and elsewhere.

“However, further thought is needed regarding calibration of PPF levy charges given the risk of increased levies for the residual corporate sponsors.”

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