Ministers are considering a sweeping reform to the fund that protects savers in company pension plans that could turn it into a vehicle able to invest tens of billions of pounds in UK businesses.
Proposals before ministers could see the government-backed Pension Protection Fund, which has £39bn in pension assets, given an extended remit to take on struggling corporate “defined benefit” retirement schemes, according to people briefed on the matter.
Currently, the PPF has a restricted role in providing a safety net for pension schemes when their employer fails, and cannot meet members’ retirement payment promises in full.
However, proposals being considered by the Treasury would see the PPF’s remit widened so it has a more active role in taking on company 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 more pension money held in defined-benefit schemes into start-ups and fast-growing businesses, as well as halting the City of London’s decline as a venue for initial public offerings by companies.
People briefed on the proposals said there would be no compulsion, but that smaller, poorer performing defined benefit schemes could ask to be taken over by the PPF.
That would allow them to benefit from scale, better governance and investment expertise, rather than waiting until they ended up in the PPF anyway after they failed. The proposals, still at an early stage, would require primary legislation, said one government insider.
There are currently around 5,100 private sector defined benefit pension schemes in the UK, with about £1.4tn in assets.
The recent surge of interest rates has boosted funding for a majority of the schemes, but there is a substantial minority that are in deficit, according to PPF analysis.
Steve Webb, a former minister and partner with LCP, an actuarial consultancy, said that if struggling pension schemes could be shifted to the PPF without failing first, it could lead to “tens of billions of assets” being transferred to the fund.
“With more than a trillion of assets in the UK defined benefit space, a transfer of assets of this sort would be possible,” he added.
However, Webb said the PPF made its own investment decisions, even though it is a statutory public corporation that is accountable to parliament.
“If the government wanted to direct investment strategy, it would…
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