Ministers are contemplating a sweeping reform to the fund that protects savers in firm pension plans that would flip it right into a car capable of make investments tens of billions of kilos in UK companies.

Proposals earlier than ministers might see the government-backed Pension Safety Fund, which has £39bn in pension property, given an prolonged remit to tackle struggling company “outlined profit” retirement schemes, in accordance with individuals briefed on the matter.

At the moment, the PPF has a restricted position in offering a security internet for pension schemes when their employer fails, and can’t meet members’ retirement fee guarantees in full.

Nevertheless, proposals being thought of by the Treasury would see the PPF’s remit widened so it has a extra energetic position in taking up firm pension plans that haven’t failed, with the transfer doubtlessly unlocking tens of billions of kilos for funding within the UK.

Jeremy Hunt, chancellor, is inspecting the proposals as a manner of directing extra pension cash held in defined-benefit schemes into start-ups and fast-growing companies, in addition to halting the Metropolis of London’s decline as a venue for preliminary public choices by firms.

Individuals briefed on the proposals mentioned there could be no compulsion, however that smaller, poorer performing outlined profit schemes might ask to be taken over by the PPF.

That will enable them to profit from scale, higher governance and funding experience, somewhat than ready till they ended up within the PPF anyway after they failed. The proposals, nonetheless at an early stage, would require main laws, mentioned one authorities insider.

There are presently round 5,100 non-public sector outlined profit pension schemes within the UK, with about £1.4tn in property.

The latest surge of rates of interest has boosted funding for a majority of the schemes, however there’s a substantial minority which are in deficit, in accordance with PPF evaluation.

Steve Webb, a former minister and associate with LCP, an actuarial consultancy, mentioned that if struggling pension schemes might be shifted to the PPF with out failing first, it might result in “tens of billions of property” being transferred to the fund.

“With greater than a trillion of property within the UK outlined profit house, a switch of property of this kind could be attainable,” he added.

Nevertheless, Webb mentioned the PPF made its personal funding selections, though it’s a statutory public company that’s accountable to parliament.

“If the federal government wished to direct funding technique, it must change the foundations for the PPF to do that,” he added.

The PPF shake-up is one among a number of choices the federal government is contemplating because it seems to be for methods to make sure that tens of billions of kilos of pension funding goes into boosting UK firms and serving to with the transition to a inexperienced financial system.

Over the previous twenty years, holdings of UK-listed firms by British pension and insurance coverage funds have plunged from about half of their portfolios to 4 per cent, in accordance with knowledge from advisory agency Ondra Companions. In the meantime, their holdings of fastened revenue have surged from 17 per cent in 2000 to 72 per cent in 2022.

This shift in asset allocation was partly pushed by an accounting change in 2000 that pressured firms to recognise pension fund deficits or surpluses on their steadiness sheets. 

A authorities spokesman mentioned: “We’re decided to extend funding into the UK’s high-growth sectors, guaranteeing our most cutting-edge companies can entry the finance they should scale up and listing within the UK.

“Unlocking the billions of kilos held in pension schemes throughout the nation is essential to channelling capital into productive property in a manner that advantages each companies and pension holders, powering financial development and growing the retirement revenue of tens of millions of savers.”

The PPF has been approached for remark.

By Editor