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The Society of Pension Professionals is calling on the government to engage with stakeholders, including pension scheme members, employers, trustees and advisers about the future of the Pension Protection Fund and its £14bn reserve.
In a paper published on Tuesday, ‘From lifeboat to legacy: what next for the £14bn PPF reserves?’, the society continues the ongoing debate about whether the £31bn PPF should continue to run such a large reserve at a time when defined benefit schemes have aggregate s179 funding of 131%, fewer employers at risk of insolvency and the PPF levy reduced to zero.
The SPP asks what level of reserves the PPF needs for long-term security, whether some should be distributed or repurposed and if so, to whom and for what, highlighting difficult to balance issues of fairness between scheme members, employers and taxpayers. The combined deficit of schemes in deficit is currently £20.8bn, larger than the PPF's reserve.
DB committee chair Jon Forsyth said: “Although the £14bn 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.”
The SPP considers several options for the PPF reserve:
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 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.
Most of these options would require the government to take action, with the SPP adding that any changes “must be approached with caution”. Retaining the reserve could be seen as overly conservative, while using them to provide member benefits, reward responsible employers or implement wider policies would raise legal and operational complexities, questions around fairness, and potential moral hazard risks.
It concludes that the management of the PPF’s reserves “is as much a question of governance and stakeholder engagement as it is of financial prudence”.
The government has just laid the legal foundations for wide-ranging pension reforms, including for the PPF, so it is questionable if there is appetite for further changes. The Pension Schemes Act 2026, which received Royal Assent on 29 April, gives the fund the option to change its levy more flexibly than previous legislation did, meaning it has been able to reduce this to zero.
Following lobbying by pensioners and union Unite, ministers also agreed to provide inflation uprating for PPF pensioners with pre-1997 accrual, but only for those whose schemes provided for this before entering the PPF.
Pensioners in the Financial Assistance Scheme are included in the reforms, but their uplifts, along with the FAS as a whole, are financed by taxpayers. Along with the PPF, the Pensions Act 2004 also created the FAS to provide some compensation to members of underfunded schemes that started to wind up between 1 January 1997 and 6 April 2005, the date the PPF started its operations.
