Government bags pension windfalls from “bad banks”.


The FT is running a story about the Government  snaffling a £100m surplus as it takes the assets and liabilities of the Bradford and Bingley and Northern Rock (BBB) defined benefit schemes onto its balance sheet.

UK Asset Resolution Limited (UKAR) , became the sponsoring employer of the schemes in June 2019 ahead of the business being sold to Davison Kempner.  The Treasury guaranteed the obligation to pay pensions whether the scheme was in deficit or surplus. Effectively the Government declared itself  a superfund consolidator.

In March 2022, Government passed legislation to move the B&B schemes to a new statutory public service pension scheme but this has not yet happened.  As at end March 2023, the schemes had an accounting surplus of over £400m on top of liabilities of £1bn. In other words, the assets of the scheme exceed £1bn.

In its 2023 financial accounts, the vehicle reported assets of £1.48bn and liabilities of £1.07bn for both pension schemes.

The £400bn surplus  was estimated on an accounting basis and the surplus set to be banked by the Treasury is expected to be a more realistic £100mn ( the supposed profit the taxpayer made from standing behind the schemes)

The two pension schemes at present reside under UKAR. They are due to be transferred on to the government’s books under the Public Service Pensions and Judicial Offices Act 2022.

Its assets are predominantly LDI so will , in normal circumstances , lead to a balance sheet movement at HMT and that will be that. As with Royal Mail, BBB would become an unfunded scheme with liabilities being absorbed into the wider Government finances rather than being ring-fenced.

Of course £100m is a drop in the ocean compared to what the bail-out money (£13bn at its peak) could have been used for 0verall profit (as detailed in the accounts)  of a few hundred millions over 15 years isn’t particularly impressive.

Who owns these windfall assets (surplus or otherwise?)

There are two questions that come to my mind about the abnormal circumstances we find ourselves in

  1. What will happen to the assets?
  2. Who owns the surplus?

What will happen to the assets?

As with the buy-back of gilts during the LDI crisis, the public purse can benefit from a windfall from price movements in assets. But in this case, the Government is just getting back debt it issued which was bought by the trustees and UKAR . It looks much more like the buy-back of Royal Mail’s old DB plan where Government banked the value of the assets and absorbed the liabilities – much more of a windfall.

To deal with the assets first…if the Government wanted to , it could swap debt for growth assets and manage the scheme liabilities with the backing of the long-term assets it wants the private sector to take on. This might do something to encourage other parts of the pension firmament to take more rather than less risk. I doubt however that the Treasury has this in mind. It is trying to transfer risk to the private sector, not take it on!

Alternatively, HMT could acknowledge the windfall and use its proceeds to seed whatever vehicle it is proposing to make available for the private sector (see yesterday’s blog)

But on to the surplus

The surplus could be seen as the tax-payers reward for standing behind the B&B schemes, though there was already a back-stop in the form of the PPF.  The Government has been providing a capital backed journey plan which has led to the state taking on the schemes as a superfund. To use the derogatory language of the Pensions Regulator, this is “profit extraction” by HMT.

Of course it needn’t be. The members of the B&B schemes might be considered beneficiaries of the surplus as might be the savers whose GPP was part funded by B&B. These employees of the bad banks were not the cause of the banking failure , other than the executive – they had no say in the rash decisions that led to the bank’s demise. Indeed most were the victims of the crisis that followed, suffering the stress of failure and the ignominy of unemployment. The argument that they should share in the windfall surplus is there to be made.

Normal circumstances?

There are never normal circumstances surrounding the capture of private sector assets through crown guarantees or the creation of a statutory body pension scheme. These are freak events.

Nor are these normal circumstances in terms of the Government’s plans for privately funded pension scheme assets. The Government implies it has skin in the game and is demanding the private sector takes more risk. This is especially the case with retail savers – saving into DC pension plans.

While I can understand the Treasury delighting in any opportunity to buy back its gilts  (especially at zero cost), I’d like to see it acknowledge that what is good for the goose (us savers) , is also good for the gander (the Treasury). I would like to see HMT using windfall pension assets  to seed funds it proposes we all  invest in – for our long-term social , environmental and personal prosperity.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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