An update at last on PSC proposals – exciting times ahead for the Pension Protection Fund?

Last year the then Government’s proposals to establish a public sector consolidator (PSC), to be administered by the Pension Protection Fund (PPF), caused quite a stir in the pensions industry.  But with the change in administration following the General Election, all seemed to have gone very quiet on the PSC front.  However, an interview in today’s Financial Times with the PPF’s Chair and Chief Executive has brought the PSC proposals back into the spotlight, alongside other changes that may be in the pipeline for the PPF…

PSC back on the agenda?

To recap, the PSC proposals were set out in detail in the DWP’s consultation on Options for DB schemes which closed in April 2024.  The idea was that the PSC would “provide an alternative endgame solution for DB schemes unattractive to commercial consolidators”.  You can read more about the proposed design in our April 2024 article.

It is safe to say that the PSC proposals generated a significant number of column inches of discussion, as well as formal consultation responses, from industry stakeholders.  Following the General Election last July, updates on the PSC proposals have been notable by their absence - the initial policy focus has been on exploring measures to drive consolidation of DC schemes and the LGPS (with a view to generating investment in productive finance), and in the DB sphere discussions have primarily centred on changes to the rules around use of surplus scheme assets.  But today we may be seeing the long-awaited first glimmer of news on the horizon for the PSC proposals, with this morning’s FT interview with the PPF.

In the interview, PPF Chief Executive Michelle Ostermann is reported as saying that the PPF has “committed” that it thinks it can get “10% of its assets into UK productive finance, which is the juicy stuff the government wants if we ran a public sector consolidator at scale”.  The interview notes that the PPF currently invests around 7.5% of its assets in this way, including £2.5bn in what the FT describes as “British infrastructure and scale up business”.  Ms Ostermann also notes that the PPF is “looking forward to expanding both domestically and internationally”. 

In the article, the PPF is described as “wanting” to be allowed to “consolidate the UK’s sprawling DB sector”. The PPF itself has always expressed broad support for the PSC proposals so in that sense today’s comments are not surprising, but the observations in relation to investments in particular perhaps indicate that there has been a reasonable degree of paddling under the water going on to keep the proposals moving forwards behind the scenes, during this period where, to the outside observer, all has been quiet on the surface.

PPF compensation changes?

The interview also discusses existing PPF compensation provisions, noting that the PPF is currently in discussions with “lawmakers” about increasing the benefits it pays its members.  As we’ve noted in recent commentary, including this January 2025 article on possible options for using the PPF’s £13bn surplus, providing increases on pre 1997 benefits (which are non escalating under current PPF compensation rules) has been a hot topic in recent months, and is the subject of ongong correspondence between the WPC and the PPF.

As well as increases on pre 1997 benefits, the interview refers to the existing 10% reduction which is applied for members who are below normal pension age as at the PPF assessment date (such members receive compensation equivalent to 90% of their scheme benefits). Kate Jones, PPF Chair, is quoted as saying that now is the time to “revisit the compensation levels paid” due to the PPF’s [improved] financial position – although she does observe that the PPF was never intended to match full scheme benefits. 

Changes to the PPF levy rules?

Although not touched on in today’s interview, another area of the PPF’s current structures where we know legislative change is under active consideration is in relation to the PPF levy. This year’s levy rules have gone so far as to have baked into them provision for the 2025/6 levy to be reduced to zero if the changes the PPF is seeking (regarding changes to the restrictions around how much the PPF can increase the levy each year) are made (or sufficiently progressed in the PPF’s view).  It will be interesting to see whether these changes form part of the Pension Schemes Bill, a draft of which is expected sometime before the summer parliamentary recess.

What next?

For now it is a case of watch this space – a response to the DB options consultation is expected “this Spring”. Are today’s comments an indication that the new Government is going to reinvigorate and run with the PSC proposals? And will changes to the PPF compensation and levy provisions be forthcoming?  We await further updates with interest.