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XPS express concerns about plans for PPF to act as public consolidator

XPS express concerns about plans for PPF to act as public consolidator

09 Apr 2024

Pensions consultancy XPS Pensions Group has expressed concerns around the Government’s proposals for the Pension Protection Fund (PPF) to act as a public consolidator. XPS has, however, outlined a vision for an extended role for the PPF to support viable DB schemes of insolvent sponsors to reach buyout and improve outcomes for pensioners of failed businesses.

XPS is basing these concerns on the following grounds:

  • The lack of evidence for a need for a public consolidator: across XPS Pensions Group’s large client base, the consultancy has not encountered the barriers that the PPF has identified in some schemes getting quotes from existing consolidators or exploring alternative endgame strategies.
  • The complexities surrounding benefit harmonisation: concern that the need to harmonise benefits of different schemes upon entry into a public consolidator, as proposed by the PPF, could create scenarios in which either the benefits are expensive to provide, or which open up the possibility of legal challenge from those whose benefits are down-rated.
  • Exposure of tax-payers: the exposure of taxpayers to pension risks of solvent sponsoring employers, and concerns around the fairness of asking taxpayers – many of whom are on less generous DC schemes – to effectively underwrite DB pensions risks.
  • Concerns around competition-distorting effects: the likelihood that a consolidator which is underwritten by the taxpayer would be more attractive to schemes than commercial competitors, thus distorting the existing market for such services.

Instead, XPS is of the view that the PPF could enhance the positive impact it already has by extending its current role for schemes with insolvent sponsors. This would be to provide stewardship to insolvent sponsor’s schemes that are well-funded but cannot afford buyout. The PPF’s role could then be to safely manage the schemes to buyout over the medium term. This would lead to demonstrably better outcomes for members than the status quo of those schemes either entering the PPF with reductions to members’ benefits or securing a “PPF plus” buyout with an insurer resulting in cuts to members’ benefits.

Paul Cuff, CEO at XPS Pensions Group, said “The PPF has done a fantastic job protecting people for 20 years and has saved many thousands of pension scheme members from disastrous outcomes. Big improvements in pension scheme funding levels mean it has less to do these days, however an update in its mandate could see it continue to play a valuable enhanced role protecting members in the event of corporate insolvencies by stewarding viably funded schemes on the last leg of their journey to buyout.

“However, the idea that the PPF should have a wider role in consolidating schemes even where the corporate sponsor is able to continue to provide support is a troubling one. We find the suggestion that UK taxpayers should underwrite the risk in a PPF-run consolidator to be quite extraordinary. On any critical assessment, there is no market or public need for a state consolidator. Given that, why should taxpayers underwrite the most generous pension schemes in the country that these days only a lucky few are members of, against the backdrop of one of the biggest issues we face as a society, which is that the vast majority of taxpayers are members of defined contribution schemes where the contributions paid in are far too low for most people to get anything like the same level of pension as those the PPF will be asking them to guarantee?”

XPS will be sharing these concerns as part of a number of proposals in response to the Government’s consultation on “Options for Defined Benefit Schemes”, which closes on 19th April.


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