The government’s plans for the Pension Protection Fund (PPF) to act as a public consolidator have prompted a number of concerns, with XPS Pensions Group arguing that the PPF's role should instead be extended to help schemes with insolvent sponsors to reach buyout.

The government recently launched a consultation on its plans to establish a public sector consolidator operated by the PPF by 2026, which would be aimed at schemes unattractive to commercial endgame providers.

However, XPS Pensions Group argued that there is a lack of evidence for a need for a public consolidator, revealing that it has not encountered the barriers that the PPF identified in some schemes getting quotes from existing consolidators or exploring alternative endgame strategies.

It also raised concerns around the complexities surrounding benefit harmonisation, warning that the need to harmonise benefits 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.

In addition to this, XPS expressed concern around the exposure of taxpayers to pension risks of solvent sponsoring employers, also querying the fairness of asking taxpayers, many of whom are on less generous defined contribution (DC) schemes, to effectively underwrite defined benefit (DB) pensions risks.

This could also create competition-distorting effects, according to XPS, as it is likely that a consolidator underwritten by the taxpayer would be more attractive to schemes than commercial competitors, thus distorting the existing market for such services.

Given these concerns, XPS argued that PPF should instead “enhance” the positive impact it already has by extending its current role for schemes with insolvent sponsors and provide stewardship to insolvent sponsor’s schemes that are well-funded but cannot afford buyout.

The PPF could then safely manage the schemes to buyout over the medium term, which XPS argued 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.

XPS Pensions Group CEO, Paul Cuff, stated: “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 DC 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?”

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