He pointed out that back in 2014 the combined deficit of DB pension schemes stood at nearly £400 billion on the PPF’s 7800 index measure. By contrast, on the latest figures the PPF 7800 index now shows a *surplus* of well over £400 billion.
Yet policy is still shaped around the debates of years gone by when the main concern was avoiding a repeat of scandals around Carillion (which went bust after paying out large dividends but with an underfunded pension scheme) and BHS (where Sir Philip Green was pressed to pay hundreds of millions of pounds into the scheme to top up its funding level).
The former pensions minister told MPs that policy now needed to address the issue that huge amounts of pension assets were now generating very little return which was a costly missed opportunity for schemes, their sponsoring employers, and for the country. He explained to the Committee an idea being developed by LCP which would allow sponsors of well funded schemes to pay a top up PPF ‘superlevy’ which would underwrite 100% of member benefits. With this secure underpin, scheme assets could then be more freely invested for higher returns, generating surplus funds which could benefit DB members, the DC generation, employers and the wider economy.
Commenting after the evidence session, Steve Webb said: “There is no doubt that DB pension scheme funding has been transformed for the better in the last decade. Yet policy risks being stuck in a previous era. For many of our clients the issues we are now discussing are about managing surplus risk through derisking, rather than dealing with deficits. It is time for some creative policy thinking that would allow nearly £1.5 trillion of DB assets to be invested for long term growth rather than being increasingly locked into low-return and low-risk assets”.
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