Funding for UK Pension Protection Fund Plans Rises Slightly in June

The total surplus of the plans in the U.K.’s Pension Protection Fund 7800 Index increased to 473.6 billion pounds ($608.2 billion) in June from 468.8 billion pounds at the end of May, bringing the total value of their assets to more than 1.43 trillion pounds, compared with liabilities of 958.9 billion pounds.

The index encompasses 5,050 occupational defined benefit pension plans and defined benefit elements of hybrid plans.

Total plan assets rose 1.1% during the month and were up 6.3% from a year earlier, while liabilities also rose 1.1% compared with May and were up 4.5% from the end of June 2023. Among the plans in the index, 4,599 were in surplus, up from 4,574 at the end of May and 4,486 a year earlier, while 451 plans were in deficit, down from 476 a month earlier and 564 at the end of June 2023.

The less-than-5-billion-pound funding increase meant the funding ratio for the index remained relatively unchanged from the end of May at 149.4%.

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The total surplus for the overfunded plans increased to 477.1 billion pounds from 472.4 billion pounds at the end of May and from 433.3 billion pounds a year earlier. The total deficit of the underfunded plans declined to 3.5 billion pounds from 3.6 billion pounds at the end of May but was up from 3.2 billion pounds at the end of June 2023.

“The story of the past month has largely been one of stability with the estimated funding ratio staying level with its position at the end of May,” said PPF Chief Actuary Shalin Bhagwan in a statement. “The primary driver behind the increase to both the liabilities and the assets was the small decrease to yields on fixed-interest gilts, after the Bank of England hinted that a cut in policy rates might be on the cards in August.”

Last month, when the Bank of England voted to keep interest rates at a 16-year high of 5.25%, it suggested it would consider cutting interest rates in August, noting that headline Consumer Prices Index inflation had retreated to its target rate of 2%. The bank stated it would “continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole,” including labor market conditions, wage growth and services price inflation.

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Tags: 7800 Index, Bank of England, fixed-interest gilts, June 2024, Pension Plans, Pension Protection Fund, Shalin Bhagwan, surplus, UK, yields

Newly appointed U.K. Chancellor of the Exchequer Rachel Reeves Tuesday announced plans to create a national wealth fund to make infrastructure- and energy-transition-related investments. The fund could be active in less than a week.

“We need to go further and faster if we are to fix the foundations of our economy to rebuild Britain and make every part of our country better off,” Reeves said in a statement. “That is why in less than a week we are establishing a new National Wealth Fund and bringing together the key institutions that will help unlock investment in new and growing industries.”

The U.K. Infrastructure Bank will allocate 7.3 billion pounds ($9.37 billion), which would be available for investments immediately, to the national wealth fund. The U.K. Infrastructure Bank, as well as the British Business Bank, will manage the assets of the fund in the near term.

The plans for the National Wealth Fund were part of the now ruling Labour Party’s platform, which the party began drafting in March. Labour won a significant victory in the U.K. general election on July 4, resulting in party leader Keir Starmer taking over as prime minister and installing a Labour-based cabinet.

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The Green Finance Institute, a task force that will advise the fund, has identified five sectors that would benefit from investments from the fund, including green steel, green hydrogen, industrial decarbonization, ports and gigafactories for the production of electric vehicles and batteries.

While the preliminary funding will be available, the GFI estimates that the supplemental private and public investment needed by 2030 could range from 35.9 to 56.9 billion pounds ($46 billion to $73 billion). Likewise, the Climate Change Committee, which advises the U.K. government on emissions targets, has called for a sustained investment of 50 billion pounds per year for energy transition investments between 2030 and 2050.

“Our mission to make Britain a clean energy superpower is about investing in Britain,” said U.K Energy Secretary Ed Miliband in a statement. “Our National Wealth Fund will help create thousands of jobs in the clean energy industries of the future to boost our energy independence and tackle climate change.”

To meet these investment goals, the U.K. government will need to “deploy the right combination of policy, regulation, tax, and subsidy, as well as catalytic capital to crowd in sufficient private capital. Policy will be a key enabler,” the GFI noted in a report. In the long term, the fund expects the ratio of private to public capital to be 3:1.

In a separate report, the GFI recommended that private capital be invested on a deal-by-deal level, with private investors investing in individual projects, rather than investing at the fund level, to accelerate activity in the immediate term.

Funding for UK Pension Protection Fund Plans Rises Slightly in June

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