As the paper acknowledges, since its establishment under the Pensions Act 2004, the PPF has become a cornerstone of the UK’s pensions system, providing compensation to over 200,000 members of defined benefit (DB) pension schemes whose employers have become insolvent. Today, it pays out more than £1.2 billion annually and holds assets of around £31 billion, including over £14 billion in reserves.
The SPP paper goes on to highlight that the PPF is now operating in a significantly changed landscape to when it was established, with most DB schemes better funded, fewer employers at risk of insolvency, and the PPF levy reduced to zero. As a result, the fund’s growing reserves raise important strategic and policy questions.
The SPP paper seeks to address these questions. For example, what level of reserves the PPF needs for long-term security; whether excess reserves should be retained, redistributed, or repurposed; and how such decisions can balance fairness between pension scheme members, employers, and taxpayers.
The paper outlines a range of potential options, including:
enhancing pension scheme member compensation, including pension increases and removing benefit reductions;returning funds to levy-paying employers;
retaining reserves as a long-term financial buffer;
supporting a public sector consolidator for DB schemes;
establishing a universal collective defined contribution (“CDC”) pension scheme that is open to all employers and to all pension savers at retirement;
contributing to wider public policy initiatives, such as retirement adequacy or UK centred investment.
The paper recognises that most options for reform would require government action and that any changes must be approached with caution, given the legal, financial and intergenerational fairness considerations involved.
The SPP’s DB Committee Chair Jon Forsyth said: “Although the £14billion in PPF reserves represents a significant opportunity, it also carries a responsibility to safeguard the PPF’s core mission. Striking the right balance between prudence and innovation will be critical as policymakers consider how the PPF can evolve from a “lifeboat” into a broader legacy institution for the UK pensions system.”
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