The 300 Club has published a paper proposing a new government-backed security to help raise money to address climate change at an affordable rate.

This would be achieved by the private sector issuing bonds that have a government guarantee, ensuring pricing continues to be closely linked to the gilt curve. It would also avoid government adding more debt to its already stretched balance sheet. Through a public/private partnership the government would establish the governance and pricing structure, with the private sector building and operating the assets. 

The security would have the following characteristics:

• 25 years of annual payments, increasing either by inflation, or by a fixed percentage, or by nominal GDP
• No final return of principal

The cash flows resemble a fixed-term annuity directly matching the cash needs of a retiree and would have an appropriately long duration. 

For DB funds, a security with these characteristics would fit very well with their liability profile.

For DC participants, the security could either be sold in the wholesale market or alternatively provided through National Savings & Investments (NS&I).  Provision through the wholesale market would allow financial institutions to acquire these securities as part of a more comprehensive retirement package including, for example, an element of life insurance to cover the longevity risk beyond the age of 90.