The Pension Protection Fund should be tuned into a ‘superfund’ to boost investments into the UK economy according to Tony Blair’s Institute for Global Change think tank.
Its ‘Future of Britain’ initiative proposes a ‘radical’ overhaul of the pensions system in the UK, which it says is ‘broken and long overdue sweeping change’.
The think tank points out that over the past 20 years UK pensions funds have significantly reduced investment in the domestic economy with “the almost total liquid of their holdings in listed UK equities built up over generations.”
It says this has depressed UK company valuations, constrained business investment and limited the supply of growth capital to improve productivity and fund innovation.
While this has had knock on effects on the UK economy the think tank also says that UK pension fund have been among the poorest in the industrialised world.
In order to address this issue, it is proposing the PPF — a lifeboat scheme designed to bail out DB schemes that go bust — should become the country’s first ‘superfund’ which is suggests should be called ‘GB Savings One’.
In order to give the scheme more clout the proposals suggest that sponsors of the UK’s smallest 4,500 DB schemes would be offered the voluntary option of transferring to the PPF on a benefit-preserving basis.
It says: “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.”
It estimates that over a three to five year period the UK would emerge with around half a dozen global-scale, worth between £300 billion to £400 billion apiece.
It says these would be professionally managed, long time horizon, diversified funds.
It calls for these superfunds to delay long-term equity to invest in theUK’s economic future. It adds: “If implemented these changes would secure better outcomes for UK pensioners, release capital for investment in long-term growth, reinforce national security by reducing the UK’s dependence on foreign capital, and begin the process of restoring the dynamism that the UK economy has steadily lost over the last two decades.”
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