Like Steve Webb, I am genuinely surprised that the PPF has not been chosen to lead the charge on scheme consolidation

Third: Perhaps a surprising omission from the Pension Schemes Bill is measures to turn the Pension Protection Fund into a Public Service Consolidator – but presumably that will come later (3/4)

— Steve Webb (@stevewebb1) July 17, 2024

Unlike Steve, I am pleasantly surprised

The PPF is a public success story , it is well administered , well (if cautiously) invested and has been so well funded that it now has a surplus of £12.5bn, enough to pay for the National Wealth Fund with plenty to spare.

Its new CEO, Michelle Ostermann, arrived from Canada  with a reputation for entrepreneurial dynamism; all the signs were that a Labour Government would have adopted the recommendation of the Tony Blair Institute and offered up the rump of DB schemes which still do not fall the right side of the Gateway test to her.

Not only does the PPF not get a mention in this role, but neither does the “super-levy”, LCP’s ruse to run on its larger best funded clients using the PPF as a backstop. The PPF has been put back in the box.

Enter the suppliers of private capital

Much to the bemusement of Steve Webb, the Government is turning again to the private sector for consolidation. To date that has meant Clara, whose “bridge to buy-out model” makes considerable sense. Occupational schemes work well for young demographics but  combination of the matching adjustment and the diminishing capacity of even a consolidator to self-insure, makes off-loading the unwanted later life risks to an insurer a good idea.

All the same, the  narrower the  bridge to buy out , the more a consolidator looks like the departure lounge for a flightpath to insurance, there is a narrow pathway between insuring too early and missing the benefits of running on and insuring too late – risking the financial security of the consolidator and of its membership.

This dynamic approach to solving the problems of run-on is what private sectors have adopted, they are agile, innovative and energetic, all the things that the public sector is not. While consolidation has been slow to take off, Clara tell us they have a healthy pipeline, consultants report strong demand for Covenant Support from the capital markets

The Pension Protection Fund may consider it is above all this and so long as it enjoys its current covenant, it is probably the best lifeboat on the planet. However , it is living on easy street and like its DC counterpart – Nest – it seems keen to expand its remit while lolling on the couch.

Meanwhile, there is intense activity in the race to deliver capital to DB plans wishing to be self-sufficient of a weak employer or planning to distribute surplus to members and staff of the sponsor who don’t benefit from the DB promise. Many DB plans are hoping to work with sponsors to make the covenant more sustainable both financially and in terms of its contribution to the planet.

I suspect that there is considerable interest in this area of the market from this Labour Government. It  should be able to see the entrepreneurial risk-taking of those supplying the capital as a model not for a quiet graveyard but for a reinvigoration of both DB and DC pensions (and I mean pensions).

No reward for lolling on the couch

Personally I am bored with the feather-bedding of the Government sponsored private sector support mechanisms – NEST, MaPS and the PPF.

They have become a cosy backwater of inefficiency, beloved of those for whom profit is a dirty word. They rely on subsidies from occupational schemes, DWP loans and in the case of MaPS omni-funding. They take few risks and have a dependency culture ill-suited to the vison of “growth” being touted by former and future Government’s.

While from a public policy perspective , it is easy to convince think-tanks that not for profit works, in reality it doesn’t. It leads to a lazy lolling on the couch.

My many friends in the PPF will not like me for this, but I am pleased that they do not appear to be being put forward as expected. The PPF needs to ditch its dependency on levies if it is to compete for consolidation. I don’t see much sign of it having the culture to do that now – if ever.