Ministers are considering reshaping the lifeboat pension fund to give a boost to business

Ministers are considering an overhaul of the fund that would protect savers on company pension plans and could turn it into a vehicle capable of investing tens of billions of pounds in British companies.

Proposals before ministers could see the government-backed Pensions Protection Fund, which holds £39 billion in pension assets, given expanded powers to take over troubled “defined benefit” company pension schemes, according to people familiar with the matter.

Currently, the PPF plays a limiting role in providing a safety net for pension plans when an employer fails, and cannot deliver on promises of a retirement payment to members in full.

However, proposals being considered by the Treasury would see the scope of PPF’s conversion broadened so that it would have a more active role in taking over the company’s pension schemes that did not fail, with the move potentially opening up tens of billions of pounds for investment in the UK.

Jeremy Hunt, the chancellor, is considering the proposals as a way to direct more pension money locked in defined benefit schemes to start-ups and fast-growing companies, as well as stem the decline of the City of London as a venue for initial public offerings by companies.

People briefed on the proposals said there would be no coercion, but that smaller, lower-performing defined benefit plans could ask to be taken over by the PPF.

That would allow them to benefit from scale expertise, governance and better investments, rather than waiting until they end up in PPF anyway after they fail. A government insider said the proposals, which are still at an early stage, would require preliminary legislation.

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

Recent rises in interest rates have boosted funding for the majority of schemes, but a significant minority are deficient, according to a PPF analysis.

Steve Webb, a former minister and partner at LCP, an actuarial advisory firm, said that if distressed pension systems could be converted to PPF without failing first, it could transfer “tens of billions of assets” to the fund.

“With over a trillion assets in the UK defined benefit space, it would be possible to transfer assets of this type,” he added.

However, Webb said PPF made its own investment decisions, even though it is a statutory public company responsible to Parliament.

“If the government wants to direct investment strategy, it will have to change the rules of the PPF to do so,” he added.

Amending the PPF is one of several options the government is considering as it looks for ways to ensure tens of billions of pounds in pension investments go into boosting UK businesses and helping with the transition to a green economy.

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

This shift in asset allocation was driven in part 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 high-growth sectors in the UK, ensuring that our most developed companies have access to the financing they need to scale up and list in the UK.

“Unleashing the billions of pounds held in pension schemes across the country is key to channeling capital into productive assets in a way that benefits both businesses and pensioners, spurring economic growth and increasing retirement income for millions of savers.”

PPF has been contacted for comment.

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