UK pension protection fund aims for financial self sufficiency

News - Savings

Written by Ray Clancy

Monday, 30 August 2010 08:00

The UK’s Pension Protection Fund aims to be financially self sufficient by 2030 as part of a long term plan to provide existing levels of compensation to current and future members.

It has made its targets public for the first time since it opened for business more than five years ago in order to provide reassurance to members and certainty for levy payers.

‘We think it is important that we expose our plans so we can show how we intend to ensure we have the financial resources needed to pay existing levels of compensation to current and future members of the PPF and become self-sufficient by the time the level of risk to the PPF from future insolvencies has reduced substantially,’ said PPF Chief Executive, Alan Rubenstein.

As well as being fully-funded by 2030, the PPF aims to have eliminated its exposure to interest rate, inflation and other market risks. It also wants to build up a reserve, or acquire hedging instruments, to protect itself against future claims on the PPF and against the risk of its members living longer than estimated.

The funding target will be met by a combination of investment returns, proceeds from the assets of schemes brought into the PPF and by continuing to collect an annual pension protection levy from eligible pension schemes.

‘We believe this will further reassure our members, now and in the future, that their compensation comes from a stable and trusted source. It will also provide greater certainty and predictability for those who pay the pension protection levy by clearly showing how we expect to meet our liabilities as the number of levy payers and the real value of levy receipts falls over time,’ said Martin Clarke, executive director of financial risk at PPF.

The PPF will measure progress to achieving the funding target on an annual basis and, if things are not going according to plan, it may review the objective or other areas which may affect it, for example, its own investment strategy.

The PPF was set up under the provisions of the Pensions Act 2004 in April 2005 and is classified as a public financial corporation. It has been established to pay compensation to members of eligible defined benefit and hybrid pension schemes when there has been a qualifying insolvency event in relation to the employer, and where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation.