DB pension schemes – investment in productive finance

The government has published a call for evidence on how investment by DB occupational pension schemes in productive finance could be increased while maintaining benefit security for members. Productive finance means equity capital and finance for UK businesses such as start-ups, infrastructure and private equity as well as longer-term investments, typically in illiquid assets.

The call for evidence covers the following areas:

• Underinvestment in productive finance – The government believes there is evidence that DB schemes are underinvested in productive finance and asks whether there is evidence to the contrary. It also asks what changes might incentivise greater investment in productive finance whilst maintaining appropriate benefit security and meeting trustee fiduciary duties.
• Building surpluses – The government believes that the current rules on how surpluses can be used, and the obligation on employers to fund any deficit resulting from investment underperformance, provide little incentive for employers to invest for surplus. There is likewise little incentive for trustees to invest with a view to achieving funding on a higher level than that required to pay the promised benefits. The government is therefore exploring what changes could be made to the treatment of surplus that might encourage greater investment in productive finance.
• Consolidators – Other than buy-out, there are limited options for employers to move their DB scheme off their balance sheet. The government is planning to introduce a statutory authorisation and supervision regime for DB superfunds, but wants to gather evidence around other possible options for the entire spectrum of DB schemes, including the potential advantages and disadvantages of a public sector consolidator. In particular, the government is considering whether the Pension Protection Fund could operate this type of consolidator, given its track record of investing for long-term objectives.

The call for evidence closes on 5 September 2023.