The Tony Blair Institute (TBI) has called for an expansion of the Pension Protection Fund (PPF) to establish the country’s first ‘superfund’, GB Savings One.

Under the proposals, sponsors of the smallest 4,500 UK defined benefit (DB) schemes would be offered the voluntary option of transferring to the PPF on a benefit preserving basis to be agreed between the companies and the PPF.

The TBI suggested that the PPF model should then be replicated and rolled out throughout the UK in a series of regional, not-for-profit entities that sit within a master governance structure under the existing fund or participate in consolidation in parallel with and modelled on the original GB Savings.

The think tank identified a number of "primary candidates" for these GB Savings superfunds, including the eight local-government pension schemes (LGPS), the Universities Superannuation Scheme, the 27,000 defined contribution (DC) schemes and, potentially, public-sector pension schemes.

TBI suggested that this approach would see the UK emerge with around half a dozen £300bn-£400bn apiece diversified funds in three to five years, arguing that “not only would these superfunds generate better, more secure returns for pensioners than the 5,200 existing DB funds, they would also strengthen pensions for the entire generation stuck with inadequate provision since the closure of the DB funds over the past two decades”.

It also argued that this modernised system would attract and deliver the highest calibre of professional fund management that goes hand-in-hand with global scale instead of the "present fragmented, actuarial and accounting-driven technical orientation".

To tap into existing specialised investment expertise, the TBI recommended that new consolidated GB Savings could channel some of the increase in assets into existing qualifying vehicles that have a proven track record within their field.

PensionBee chief executive, Romi Savova, acknowledged that, for DB schemes, the proposals put forward by the Tony Blair Institute seem sensible and a natural evolution of a structure already in place, arguing that there are “huge benefits” to removing the management of these pension plans from companies and placing them together in a ‘superfund’ - especially for the UK economy.

However, she argued that DC pensions are a different story as, unlike DB schemes, there is no promise to savers to pay them a pension; the pension income in retirement depends on the investment return.

“So there is already a huge incentive to seek the best returns for defined contribution schemes,” she stated. “Unfortunately over the last decade or so, the UK has been a poor return environment.

“If the change in DB investment works to kickstart the UK economy, then DC funds will naturally invest here for returns.

"The government’s ‘value for money’ framework helps create transparency and comparability across DC pensions, but with this type of pension, where individuals are responsible for their own retirement pots, it’s not possible to have a mandated investment strategy.”

Share Story: