Rising amounts of defined benefit schemes in surplus coupled with significant reserves held in the Pension Protection Fund means it can transition from a needed ‘life boat’ for bankrupt schemes and instead become a “legacy institution”, according to a report from the Society For Pension Professionals.
The paper, “From Lifeboat to Legacy: What Next for the £14bn PPF Reserves?” called for full and transparent government engagement with stakeholders, including pension scheme members, employers, trustees and advisers on the future role of the PPF.
The PPF pays out more than £1.2bn annually and holds assets of around £31bn, including over £14bn in reserves.
The SPP paper highlighted that the PPF is now operating in a significantly changed landscape to when it was established, with most DB schemes better funded, fewer employers at risk of insolvency, and the PPF levy reduced to zero. As a result, the fund’s growing reserves raise important strategic and policy questions.
The SPP’s DB committee chair Jon Forsyth says: “Although the PPF reserves represents a significant opportunity, it also carries a responsibility to safeguard the PPF’s core mission. Striking the right balance between prudence and innovation will be critical as policymakers consider how the PPF can evolve from a “lifeboat” into a broader legacy institution for the UK pensions system.”
The SPP report also noted that changes in the broader DB landscape are also reshaping the context in which the PPF now operates. The number of occupational DB schemes has shrunk from around 7,800 in 2007 to less than 5,000 today and The Pensions Regulator predicts that around 2,400 to 2,600 schemes with around £200-400bn of assets will participate in insurance transactions over the next 10 years.