Government must consult on future of £14bn PPF reserves, says SPP

The Society of Pension Professionals has called for a government consultation on the future of the Pension Protection Fund’s £14bn reserves, warning that any decision must balance prudence, fairness and the PPF’s original role as a defined benefit lifeboat. 

In a paper published on 12 May 2026, the SPP said the PPF now operates in a very different environment from the one in which it was created under the Pensions Act 2004. 

The fund was established to protect members of underfunded defined benefit schemes, and pays more than £1.2bn a year to more than 200,000 retirees. It now holds around £31bn in assets and has built up more than £14bn in reserves. 

Stronger DB funding, fewer expected employer insolvencies and the reduction of the PPF levy to zero have created “important strategic and policy questions” over what level of reserves the PPF needs and what should happen to any amount deemed surplus to long-term requirements.

The SPP does not recommend a single option. Instead, it outlines several potential uses, including:

• enhancing pension scheme member compensation, including pension increases and removing benefit reductions;
• returning funds to levy-paying employers;
• retaining reserves as a long-term financial buffer;
• supporting a public sector consolidator for DB schemes;
• establishing a universal collective defined contribution scheme that is open to all employers and to all pension savers at retirement;
• contributing to wider public policy initiatives, such as retirement adequacy or UK-centred investment.

However, many of these routes would require government action and legislative change. The SPP noted that the PPF board cannot return excess reserves to levy-paying schemes or employers while the PPF is ongoing, and lacks the power to distribute surplus if the fund were to be wound up.

The issue has become more sensitive since the government announced that some pre-1997 PPF benefits will receive CPI-linked increases, capped at 2.5%, from January 2027 at the earliest. While many pensioners are expected to benefit, the SPP said the lack of consultation showed why any further use of the reserves must be handled more transparently.

Jon Forsyth, chair of the SPP’s DB committee, said: “Although the £14 billion in PPF reserves represents a significant opportunity, it also carries a responsibility to safeguard the PPF’s core mission. Striking the right balance between prudence and innovation will be critical as policymakers consider how the PPF can evolve from a “lifeboat” into a broader legacy institution for the UK pensions system.” 

Returning funds to employers could recognise that around 23% of the PPF’s reserves came from levy receipts, but would raise practical questions over which employers should benefit and how historic contributions should be calculated. 

Enhancing member benefits could also narrow the gap between PPF compensation and original scheme promises, but the SPP warned this could create fairness issues between generations, increase scheme liabilities on a section 179 basis and raise questions over moral hazard.

Using the PPF to support a public consolidator or wider policy aims could help address fragmentation and retirement adequacy, but would represent a move away from the purpose for which the funds were originally collected.

The SPP concluded that the government and the PPF should proceed only after actuarial analysis, legal review and consultation with members, employers, trustees, advisers and other stakeholders.