Consultants welcomed potential changes from the U.K. Treasury that would allow struggling defined benefit plans to opt into the London-based Pension Protection Fund in an effort to grow assets and steer more investments toward funding the U.K. economy.
The Treasury is said to want to grow the £39 billion ($48.5 billion) PPF's assets and have some influence over how these assets are invested. This could be achieved by allowing struggling defined benefit funds to opt in to the PPF, a note from U.K. consultant Lane Clark and Peacock said Friday.
PPF is the lifeboat fund for defined benefit plans of insolvent U.K. employers.
Currently, pension funds enter the PPF after an assessment in the event of the insolvency of their employer. The PPF makes its own investment decisions.
Consultants welcomed the potential changes mulled by the government.
Alex Hutton-Mills, managing director at Cardano Advisory, said in an emailed comment: "The thinking behind extending the remit of the PPF to cover DB schemes with 'stressed' corporate sponsors is certainly welcome in an environment with elevated interest rates and inflation, which are increasing the pressure on cash flows of affected businesses."
"A new 'master consolidator' in the PPF would provide flexibility for small schemes or 'stressed' corporate sponsors of DB pension schemes where the funding can be directed at the investment needs of U.K. PLC and elsewhere," he added.
In April, the PPF, in its submission to the Work and Pensions Select Committee as part of inquiry into pension funds, estimated that despite improvements in funding levels, there remain a small subgroup of 240 stressed funds. These plans have poor funding and weak sponsors and won't reach an endgame with acceptable levels of risk, the submission said.
David Wrigley, investment partner at LCP, added in a separate emailed comment: "These proposals would represent seismic changes to the U.K. pensions landscape, with far-reaching implications. With scant details on how this would work in practice, there are many more questions than answers at this stage."
"Under these plans, it seems the Treasury stands to benefit. Both in terms of directing investment of large pots of assets, and also presumably with half an eye on an eventual surplus emerging from the PPF," he added.
In response to a question about the potential proposals to extend the remit of the PPF, the government spokesman said: "We're determined to increase investment into the U.K.'s high growth sectors, ensuring our most cutting-edge businesses can access the finance they need to scale up and list in the U.K."
Responding to a potential new role, a PPF spokesman said that "it is a matter for policymakers."
"We recognize there are opportunities which could deliver better outcomes for defined benefit scheme members and support the wider economy. Given our proven skills and capabilities, including our investment expertise, we stand ready to support government and industry where PPF could form part of the solution," the spokesman added.
