Ministers are considering a sweeping reform of the fund that protects savers in company pension plans that could make it a vehicle capable of investing tens of billions of pounds in UK companies.

The proposals before ministers could see the government-backed Pension Protection Fund, which has £39bn in pension assets, given an extended mandate to take over struggling corporate “defined benefit” retirement plans, according to people informed about the matter.

Currently, the PPF has a restricted role in providing a safety net for pension plans when their employer goes bankrupt and cannot meet members’ retirement payout promises in full.

However, the proposals being considered by the Treasury would expand the mandate of the PPF so that it has a more active role in assuming the pension plans of companies that have not failed, with the measure that could unlock tens of thousands of million pounds to invest in the UK.

Jeremy Hunt, chancellor, is examining the proposals as a way to direct more pension money held in defined benefit plans to new and fast-growing companies, as well as halt the The decline of the city of London as a venue for companies’ initial public offerings.

People briefed on the proposals said there would be no compulsion, but smaller and poorer-performing defined benefit schemes could request that the PPF take over.

That would allow them to benefit from scale, better governance, and investment expertise, rather than waiting until they ended up in the PPF anyway after they failed. The proposals, still at an early stage, would require primary legislation, a government official said.

There are currently around 5,100 private sector defined benefit pension plans in the UK, with around £1.4 trillion in assets.

The recent increase in interest rates has boosted funding for most schemes, but there is a substantial minority that is in deficit, according to the PPF analysis.

Steve Webb, a former minister and partner at LCP, an actuarial consultancy, said if distressed pension plans could be moved to the PPF without failing first, it could lead to “tens of billions of assets” being transferred to the fund.

“With over a trillion assets in the UK defined benefit space, such an asset transfer would be possible,” he added.

However, Webb said the PPF made its own investment decisions, despite the fact that it is a statutory public corporation that reports to parliament.

“If the government wanted to direct the investment strategy, it would have to change the rules for the PPF to do this,” he added.

PPF’s restructuring is one of several options the government is considering as it looks for ways to ensure that tens of billions of pounds of pension investment goes towards boosting UK businesses and helping with the transition to a green economy. .

Over the past two decades, British insurance and pension funds’ holdings of UK-listed companies have plummeted from about half of their portfolios to 4 percent, according to data from advisory firm Ondra Partners. . Meanwhile, their fixed income holdings have risen from 17% in 2000 to 72% in 2022.

This change in asset allocation was partly driven by an accounting change in 2000 that forced companies to recognize pension fund deficits or surpluses on their balance sheets.

A government spokesperson said: “We are determined to increase investment in the UK’s high-growth sectors, ensuring that our most forward-thinking companies can access the finance they need to grow and be listed in the UK.

“Unlocking the billions of pounds in pension plans across the country is key to channeling capital into productive assets in a way that benefits both companies and pension holders, driving economic growth and increasing income. of retirement of millions of savers”.

PPF has been contacted for comment.

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