01.05.2024
Today we submitted our response to DWP’s consultation on Options for Defined Benefit Schemes. The aim of the consultation is to introduce reforms to the private sector Defined Benefit (DB) pensions system that benefit scheme members, sponsoring employers, and the wider economy.
We’ve also published a revised proposition for how the consolidator could be designed, which has been informed by stakeholder feedback.
We’ve summarised the key messages within our response below.
More choice and capacity is needed
More choice is needed to enable all Defined Benefit (DB) schemes to capitalise on improved scheme funding and get ‘endgame’ ready.
Evidence suggests that a public sector consolidator would offer a much-needed new option for schemes, and their sponsoring employers, who face challenges securing the best possible outcomes for their members.
Thousands of schemes may struggle to secure appropriate ‘endgame’ solutions
As interest rate rises in recent years have boosted overall DB scheme funding levels, there has been an unprecedented demand for ‘endgame’ solutions. For many schemes the solution is insurer buyout.
Despite the increase in buyout deals, and the introduction of commercial superfunds, evidence shows that many schemes still don’t have timely access to commercial solutions on reasonable terms.
We’ve assessed that potentially up to 2,300 schemes, serving 960k members, and with total assets of £130bn, may struggle to obtain timely access to an appropriate endgame solution.
Less well funded schemes remain locked out of the market altogether.
PPF-run consolidator would offer a new option for schemes
Existing consolidation options are mostly focused on larger schemes. The schemes that are ‘unattractive’ to commercial providers, could benefit from the additional choice the new consolidator would provide and a secure home for transferring members.
The new consolidator could support UK businesses and the economy
The new consolidator could, dependent on scale, also help maintain a strong UK gilt market and increase investment in assets which support UK businesses and the economy.
We currently allocate c.35 per cent of our investment portfolio to gilts and c.30 per cent to productive assets. We’ve assessed that the new, separate, consolidator could, dependent on scale, risk budget and suitable underwriting, potentially allocate around £10bn to UK-growth supporting investments.
“Timely, affordable access to endgame solutions is vital”
Our Chair, Kate Jones, said: “The PPF’s core mission is to protect DB members and, as we look to the future, member interests must remain paramount. To deliver the best possible outcomes for all DB members, choice, and timely, affordable access to endgame solutions is vital.
“Evidence, and stakeholder feedback, suggests more choice in the market is needed to capitalise on this window of opportunity with improved funding levels.
“Our maturity and capabilities mean we can operate this new, separate fund – providing more choice for schemes and a secure home for transferring members – without affecting the continued successful delivery of our existing functions.”
“Pension consolidation can drive better member outcomes and support productive investment”
Our CEO, Michelle Ostermann, said: “International experience shows that pension consolidation can drive better member outcomes and support productive investment.
“There is a big opportunity in the UK to consolidate the highly fragmented DB landscape and make more of the £1.4 trillion in assets work harder for members and the UK economy.
“To fully realise the potential of the new consolidator, we believe it should be open to all schemes who, without it, may struggle to get timely access to market solutions.
“We remain confident that a well-designed PPF-run consolidator will complement commercial providers and ultimately support a thriving marketplace which delivers for all members.”
