Expand the Pension Protection Fund to create "GB Savings One" – the UK’s first superfund created by consolidating the proliferation of existing pension funds.
New £400 billion fund would have a mandate to invest £100 billion in UK infrastructure, companies and startups.
Reforms would help secure better outcomes for pensioners, reinforce national security by reducing the UK’s dependence on foreign capital and invest UK pension funds in UK industry.
Creating "GB Savings One", the UK’s first superfund, is among a series of new proposals to reform the broken pensions system made today by the Tony Blair Institute for Global Change (TBI), as part of its Future of Britain initiative.
Despite the UK having one of the largest pensions markets in the world, overseas pensions invest 16 times more in British venture capital and private equity than domestic public and private pensions do. Both pensioners and the economy have suffered as a consequence.
In the new paper Investing in the Future: Boosting Savings and Prosperity for the UK, TBI Director of Policy Jeegar Kakkad, Co-Founder and Managing Partner of Ondra Partners Michael Tory and former Executive Director of the Financial Institutions Group Martin Madsen set out a simple three-step plan to create a savings system of half a dozen global-scale savings vehicles in the order of £300 billion to £500 billion.
Consolidating existing pension funds rather than having lots of smaller ones so that they are able to invest would secure better outcomes for UK pensioners and release massive sums to underpin UK investment in new technologies and infrastructure.
TBI Director of Policy Jeegar Kakkad said:
“We need these reforms to benefit pensioners and light a fire under the UK economy. The UK’s entrepreneurs and innovators shouldn’t have to look abroad for the capital to match the ambition of their ideas.
“By deploying long-term equity to invest in the UK's economic future, these superfunds would help restore the lost vitality of UK industry. They would ignite the UK’s creativity, innovation, the energy transition and re-establish London as a global financial centre.
“They would also give our pensioners the returns they deserve, lifting returns from being among the poorest in the industrialised world to among the best.”
Michael Tory, Managing Partner, Ondra Capital, said:
“This is a great country, with an uncommon dynamism and creative spirit. Today’s proposals would begin the process not only of establishing the secure savings system its citizens deserve but also unlocking this unmatched, pent-up energy and talent through the nation’s first world-class, long-time horizon pool of capital at scale.”
At the heart of the proposals is expanding the Pensions Protection Fund (PPF). Instead of having to fail in order to transfer their pension fund, 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 PPF model would then be replicated and rolled out throughout the UK in a series of regional, return-generating, not-for-profit entities that would progressively absorb the UK’s 27,000 defined-contribution funds, the Local Government Pension Schemes, the remaining DB funds and, potentially, public-sector pension schemes, which in most cases are not funded.
The proposed superfunds would be professionally managed, long-time horizon, diversified funds. Not only would they generate better, more secure returns for pensioners than the 5,200 existing DB funds, but 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. And they would reinforce national security by reducing the UK’s dependence on foreign capital.
In the paper the authors detail how, as the PPF is well practiced at absorbing existing DB pension schemes, the reforms should be both easy and, subject to the necessary legislative changes, relatively quick.
The PPF’s essential infrastructure, risk-management systems and governance has also been in place and consistently proven over the last nearly 15 years of operation. The fund should therefore continue to function well on a larger scale supported by a world-class investment team and infrastructure.