Anyone in a DB pension scheme has a dependency on their employer to sponsor their scheme. It’s the dependency a child has on their parents who are needed to nurture them to maturity. But some parents have to or choose to walk away.
Such children need a foster parent. The idea is that pension consolidators offer to step in and foster pensions where there is inadequate parenting going on.
This is different from a pension scheme being bought out by an insurance company, where the scheme winds up , with consolidation , the scheme survives – but with a new parent.
In the past, the PPF have only taken on this role, when pension schemes have no parent and are unable to be bought out. But now the proposal is that the PPF take on healthy schemes from employers who want to walk away.
There are two questions here;
- Are PPF competent?
- Should the PPF be allowed to compete?
I’m keen that we discuss the suitability of various corporate actors who’ve put themselves forward to do this fostering.
I declare an interest, I work for one such myself.
The PPF want to foster – but many see them as unsuitable.
This blog has published the views of the Pension Protection Fund on their capacity to become a DB consolidator – as proposed by the Tony Blair Institute and discussed in the DWP’s recent consultation on DB options.
PPF’s proposals can be found and discussed here
The PPF’s avowed intent to put itself forward, not just as a lifeboat , but as an alternative sponsor to employers with solvent schemes which are commercially unviable has attracted some sharp comment.
and drawn a long and detailed critique from Con Keating and Iain Clacher.
Rather than ducking the criticism, Shalin Bhagwan and David Taylor, senior members of the PPF, have agreed to spend an hour with the Pension PlayPen community on Tuesday 3rd October at 10.30 am. I will be making introductions and moderating questions, of which I expect there to be many,
The question which first needs answering when thinking about DB consolidation is “Who is the benefit guarantor?” It’s the employer, while its scheme is continuing and the employer is solvent. If the employer becomes insolvent and the scheme joins the PPF, its all other employers with DB schemes through the PPF levy. If the scheme is bought out, the guarantor becomes the insurance company.
The present PPF is not suitable to take in DB schemes of solvent employers, it is not for PPF levy payers to become their guarantors. Constitutionally the PPF is not an insurance company, so it cannot provide an insurer’s guarantee.
The Mansion House consultation mooted the idea of a “public consolidator”. What does that mean? That the Government will guarantee formerly private sector DB schemes??? What will the entry terms to a “public consolidator” be? More expensive than insurance, similar to insurance or cheaper than insurance?
First find a guarantor, then we can talk about the terms on which the guarantor is willing to accept liability.
My understanding is that the PPF does not guarantee anything- if it considers itself insolvent, it goes to Government and asks to cut benefits. As such- it is a CDC scheme with the levy defined from year to year