The UK’s Pension Protection Fund (PPF), which provides a safety net for members of defined benefit pension plans that become insolvent, has raised its projections for asset and membership growth over the next three years.
In its recently released annual three-year strategic plan, the PPF said it expects its total assets under management to grow to £30.2 billion by 2019, and to £32 billion by 2020 from approximately £23 billion as of its most recent annual report. It also forecast its total membership to rise to 295,000 by 2019, and 315,000 in 2020, from approximately 225,000 today.
This is an upgrade from the PPF’s projections in last year’s strategic plan, which had forecast assets under management to reach £26.2 billion by 2019, with 285,000 members. The strategic plan is intended to set out the PPF’s vision for the next three years, and outlines how it intends to achieve its strategic objectives, which focus on funding, customer service, and risk.
“Our operating environment contains many uncertainties. We have a good understanding of our risks and mitigate them where they are within our control,” said Alan Rubenstein, chief executive of the PPF. “However, the future performance of the UK and global economies, and the volatile funding levels among the schemes we protect, pose particular risks. Nevertheless, we are confident that our funding strategy puts us in a good position to face the future.”
In addition to its financial projections, the plan confirmed that the organization has completed the first two phases of its project to in-source part of its investment management, as well as plans to in-source sections of its private and public market credit portfolio over the next three years.
The PPF said that the impact of bringing investment activities in house, which started in 2016, as well as the in-sourcing of FAS administration, are the main drivers behind the decreasing cost base of the PPF for directly managed costs.
“Continuing to leverage these initiatives enables us to achieve an overall reduction in our costs, even as member numbers grow and our operations continue to expand,” said the PPF in its report.
The PPF also outlined its goal of becoming financially self-sufficient by 2030, at which point the amount of levy the PPF could collect would be limited in relation to the size of its balance sheet. “At this point, we therefore need to have confidence that we are sufficiently funded to meet our long-term liabilities,” said the PPF.
Over the next three years, the PPF said the following activities are key to the effective management of its balance sheet:
- Conducting an annual review of its funding strategy to ensure it remains appropriate, and to continue to follow and evolve its investment strategy.
- Increasing the level of flexibility and control over its investments by bringing more of its assets under in-house management. It also plans to transfer its private and public market credit portfolio to its in-house team. It will then explore the possibility of insourcing passive currency hedging.
- Ensuring that the correct asset allocation is in place prior to the introduction of mandatory clearing for OTC derivatives established by the European Markets Infrastructure Regulations in 2018.
The PPF is a statutory fund run by the Board of the Pension Protection Fund, a statutory corporation established under the UK’s provisions of the Pensions Act 2004. To help fund the PPF, compulsory annual levies are charged on all eligible plans.