PPF to the rescue! Could Britain’s £40bn lifeboat put pensions back to work?

In a move that gets the thumbs up from this blogger, the FT report the Treasury eying up the Pension Protection Fund to take on assets and liabilities of smaller and weaker DB pensions , stuck at the back of the queue for buy-out.

The FT correctly pick up on the three important proposals

  1. The PPF is a sleeping giant , it needs to be woken up and put to work
  2. It needs to get proactive – offering itself to the market as a competitor to insurers and superfunds. That means a change in the benefits it pays
  3. It can become part of the Treasury and DWP’s plan to reflate the British economy with money currently locked in unproductive investment strategies.

The source of this information is clearly sanctioned to leak

The proposals, still at an early stage, would require primary legislation, said one government insider.

Why do I give this the thumbs up?

Confidence in Government run funded pensions

The Government has shown, through its management of the PPF and Nest that it can run large pension schemes at an arms length. Both have shown that they can provide good outcomes and have attracted praise for innovative approaches to investment and administration. Neither have stifled innovation elsewhere.

The PPF is less than half the size of Britain’s largest pension (USS) but is scalable. It needs a rebrand and legislation to change its investment strategy and its benefit promise. It cannot offer employers the option to swap the existing promise for the current substantial haircut. Any business taken on voluntarily, should provide equivalent benefits. There will be plenty of argument about “equivalence” but I believe a robust equation can be reached as it has elsewhere.

There is market demand

The current capacity from insurers to buy-out liabilities and assets of the DB market is estimated at about £60bn this year, this is a tiny fraction of the £1.5bn invested.

If – as intimated by TPR CEO Nausicaa Delfas, the door is opened to Superfunds to increase that capacity, there is still a capacity gap which means that many UK corporates are left holding the DB baby, while wanting to focus on more productive things. There is scope for insurers – superfunds, DB master trust and a revamped PPF, to work together. But it will need the change of mindset that Delfas referred to in her speech earlier in the week.

More of the £1.5 trillion in DB needs to be reinvested in productive capital

By “productive” I mean “results driven”. The aim of “productive capital” is to produce a more sustainable , environmentally friendly and source of growth for the UK. Continued investment in Government and Corporate debt is not the best use of the tax-incentivized billions locked up in DB occupational pensions.

But there is zero incentive for trustees to invest for the future when the hope-for future is to move to the front of the queue to be bought out by an insurers.

If instead of swapping the scheme’s assets for annuities, trustees had the option of transferring to what (in all but name) is an open ended pension scheme, then we might see more ambition from trustees.

I can see a virtuous circle where the ambition of many DB schemes is to embrace growth rather than avoid risk.

This is of course entirely at odds with the Pension Regulator’s DB funding code which could be happily retired – were this proposal to move forward.

What will this do for DC?

Many of the employers who fund the deficit plans demanded of them by trustees and TPR, have pension costs in their budgets that could be redeployed to run either DC or even CDC schemes for those staff not fortunate enough to have been bought out.

The Government’s thinking is clearly to release corporates to be more productive in their own right, but if DC and CDC arrangements that they run or participate in , are themselves investing in productive capital, the attitude of boardrooms towards pensions will change.

A fund set up by Government or the private sector to give the PPF access to the returns of productive capital, could of course be offered to DC savers too.

The big picture mind shift that Government wants

This is the big picture stuff, but if we ever want to get a workplace pension culture where the aspiration is to provide pensions for staff, then we need a much higher level of ambition from employers than is currently the case.

The employer who can see the UK pension system funding long term investment that it can participate in, is not going to be demanding that pension schemes provide services at such low a cost, that it can only afford to  invest in large cap passive equities, bonds and gilts.

“Value” to an employer takes on a new meaning, in pension terms, where the pension scheme becomes valuable to the shareholder and executive.

Lest we forget

In 2019, I went to 10 Downing Street and sat in a meeting where Derek Benstead and Hilary Salt called on the PPF to become a better invested, more proactive force for good.

They were right then and we shouldn’t forget that throughout the dark years since the lockdown of DB schemes, they have always proposed what is finally being considered.

The FT article can be accessed here,


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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7 Responses to PPF to the rescue! Could Britain’s £40bn lifeboat put pensions back to work?

  1. Con Keating says:

    One of the changes needed if this is allowed to develop is that TPR’s objective to protect the PPF must go. If it remains, no sensible private insurance company will operate in the DB pensions space.
    In fact, in 2007, we suggested to the then Pensions Minister, Mike O’Brien (who he? you may well ask) this and the provision of private sector full benefits pension insurance coverage, after the fashion of the Swedish PRI-Pensionsgaranti.

  2. Allan Martin says:

    Perhaps this should be considered along side the £40-50bn “invested” every year in the UK economy by taxpayers in respect of liabilities for public sector DB pension promises. The historic guaranteed return of ~CPI+3% pa on this £2tn+ of accrued liabilities has recently been reduced to CPI+1.7% pa for future accrual, but that is still quite a “lifetime (not triple) pensions lock”! Your children and grandchildren are the underwriters (if they don’t emigrate). I’m sure the climate related GDP growth rate risks and materiality will be fully covered in the post 1st July 2023 actuarial valuation reports!

  3. Martin T says:

    I seem to have anticipated this direction of travel in my comment to the May 13 blog post….

  4. Martin T says:

    Sorry, dodgy signal convinced me the multiple links hadn’t posted!
    If you can remove please do!

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