Tony Blair Institute proposes ‘radical’ UK pension superfunds

Tens of thousands of public and private sector pension plans would be pooled into “GB superfunds” with assets of up to £500bn each under “extremely radical” proposals to unleash tens of billions for UK business growth.

The measures set out in a report from the Tony Blair Institute are aimed at reversing years of capital market decline through the creation of large pension funds, similar in scale to those in Canada and Australia.

It found that 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,” the report, Investing in the Future: Boosting Savings and Prosperity for the UK, said.

“We need these reforms to benefit pensioners and light a fire under the UK economy,” said Jeegar Kakkad, TBI director of policy. “The UK’s entrepreneurs and innovators shouldn’t have to look abroad for the capital to match the ambition of their ideas.”

The TBI’s proposals would see the Pension Protection Fund, the UK’s £39bn lifeboat scheme for corporate pension plans, take a much expanded role as a fund consolidator, a move that would require a change in legislation.

Instead of having to fail in order to transfer a corporate pension fund to the PPF, sponsoring employers of the smallest 4,500 UK defined-benefit (DB) or final-salary style schemes could choose to opt into the PPF on a benefit-preserving basis, with tax incentives to do so, the report said.

This new £400bn fund, dubbed GB Savings One could invest up to £100bn in UK infrastructure, companies and start-ups, according to the document.

The PPF model would then be rolled out throughout the UK in a series of regional, not-for-profit funds between £300bn and £500bn in size. These would progressively absorb the UK’s 27,000 DB funds, the local government pension schemes, the remaining DB funds and, possibly, the public-sector pension schemes, which the paper described as “potentially the biggest prize”. 

The report said these superfunds would generate “better, more secure” returns for millions of pensioners than the 5,200 existing DB funds and would also strengthen pensions for the “entire generation stuck with inadequate provision” since the closure of DB funds over the past two decades.

The Pensions and Lifetime Savings Association, the voice for 1,300 workplace pension schemes serving 30mn savers, said the paper had “some extremely radical but also extremely impractical” ways to encourage pension funds and life insurers to invest in the UK. 

“There are much simpler and quicker solutions,” said Nigel Peaple, director of policy and advocacy with the PLSA. “The government and pensions industry are already working intensively together on these issues and, provided they always put the interests of savers first, they should result in better outcomes for everyone.”

Mick McAteer, co-founder of the Financial Inclusion Centre, and a former board member of the Financial Conduct Authority, said the UK did not have anything like the collective risk-sharing mechanisms that might allow an approach on the scale suggested in the paper, to work. 

The TBI’s proposals come as pensions have become an area of growing political focus ahead of next year’s general election. A reshaping of the PPF is one of several options under consideration by Jeremy Hunt, chancellor, as he looks for ways to unlock billions of private pension capital sources to boost UK business. 

The Labour party’s Rachel Reeves, the shadow chancellor, has not ruled out forcing pension funds to invest in areas to help economic growth.