06.12.2023
In our response to the Department for Work and Pensions’ Call for Evidence on options for DB schemes, we recognised the challenge of onboarding a large number of schemes into a public sector consolidator, acknowledging that the design should make the process as straightforward as possible.
In this blog, our Chief Customer Officer, Sara Protheroe, shares her thoughts on how thinking differently about the scheme onboarding process could make this a possibility.
If you’ve read our response to the Call for Evidence, you’ll have seen us say that we have the capability and experience to assume a new public sector consolidator role to support the government's productive finance agenda and improve outcomes for members.
We aren’t the only ones to think this. The independent review of the PPF published in December 2022 recognised the expertise and experience we have built up, and the maturity of our operating model.
The review recommended that we should work with DWP to explore the ways we can use our skills and capabilities in other ways for public benefit. One of their suggestions for us was to act as a consolidator.
There’s been external debate about how quickly schemes can/could be consolidated
But from the moment that the Mansion House proposals floated the idea of the PPF acting as a public sector consolidator, there’s been an external debate about how quickly it would be possible to consolidate schemes – particularly if the number is the 4,500 envisaged by the report from the Tony Blair Institute for Global Change.
Of course, there’s a big difference between the number of schemes that the consolidator is open to, and the number of schemes that actually look to transfer. So a consolidator that was open to the smallest 4,500 schemes is a long way from having 4,500 schemes to transfer. But even so, there’s no denying the challenge could be considerable.
We have a track record of making new approaches work
It wouldn’t be the first time we took on a task that others said couldn’t be done. Many doubted the PPF could work as a concept.
We not only proved it could, we totally transformed the way we bring schemes and members into our award-winning member services operation (as recognised by the industry when we won the Pensions Age Pensions Administration Award in 2023 for the third time).
We mustn’t forget that in our assessment period we’ve created a slick, standardised efficient process which ensures members continue to be paid seamlessly and correctly, and that assets are moved in line with the PPF’s investment approach where appropriate. While not identical to the process of winding up a scheme, this historically took significantly longer. We’ve transferred the vast majority of schemes within two years, collaborating successfully with panel firms (an innovation we introduced to help us maintain our high standards) to run key parts of the process. This not only enables them to scale up and build expertise, but also drives significant cost and time efficiencies.
In more recent years we’ve used our experience and applied it to schemes that are funded above PPF level (PPF +) with great success.
Using our assessment process we’ve previously transferred 300 schemes in a year , so it’s possible to imagine a scenario where this could be scaled up to deliver, say, 1,000 in two years. This is of course still short of the timescale that might be required.
But we mustn’t forget that we’re talking about an entirely different function, separate from the existing PPF, and dealing with solvent employers. This means that the timing of the consolidation process can be controlled by all parties, unlike employer insolvency, and that potentially time-consuming issues like maximising recoveries fall away. I believe there’s scope for that function to do things differently, for example transferring assets to the consolidator first, followed by administration of member benefits, if it’s to help achieve the government’s wider aims of increasing investment in UK productive finance as swiftly as possible. And since the sponsoring employer will still exist, some elements of the assessment process could instead become prerequisites for the scheme and employer to complete and certify before entering the consolidator.
There would be an opportunity to create new processes
If the government decides that we should take on an additional function to run a public sector consolidator, this would mean setting up a separate and independent legal entity from us as the Pension Protection Fund.
This would give us the opportunity to create new processes, so the transfer process into the new entity could be quite different from our existing process, where that makes sense.
The design of any public sector consolidator would be crucial to its success
It would clearly be important to replicate our high standards of customer service in the consolidator, while as I’ve suggested, to be able to help achieve the government’s productive finance aims the consolidator would need to be able to take on and invest scheme assets as quickly as possible .
As the consolidator would be established by legislation, the legislation setting it up could be drafted to support a transfer process that was as clear and simple as possible.
Let’s think differently as an industry
We don’t have all the answers, and we know that we need to work together to find them. But I do believe that collectively as an industry we can be innovative and think differently , and by doing this make changes which lead to better outcomes . The debate can at times feel polarised, but if we work together I’m absolutely confident that we can find solutions.
