UK's Pension Protection Fund Plans for 110% Funding by 2030

(August 26, 2010) — The UK’s Pension Protection Fund (PPF), which covers defined benefit pension schemes of collapsed companies to safeguard retiree payments, announced it would become 110% funded by 2030.

“This strategy makes public the work we have been doing behind-the-scenes since we opened our doors for business more than five years ago,” said PPF Chief Executive Alan Rubenstein in the report. “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.”

To become financially self-funded in 20 years, the PPF, which has about 5 billion pounds in assets, aims to eliminate its exposure to interest rate, inflation, and other market risks, while acquiring hedging instruments. While the PPF did not provide specific details on how they plan to accomplish this lofty goal, fund officials said they plan “to invest in a portfolio with zero market risk (by 2030), so that any movements in liabilities are matched by corresponding movements in assets.”

The plan by the PPF has been met with strong support from the industry. Joanne Segars, chief executive of the National Association of Pension Funds, told the Financial Times that the plan was good “not just for those whose benefits it is paying but levy payers, too”. On the other hand, critics of the UK pensions lifeboat claim the fund lacks a long-term future, as it will be forced to impose a higher levy on a smaller pool of businesses as companies close defined benefit schemes in favor of cheaper defined contribution funds, The Telegraph reported.

According to the latest annual report for the year ended March 31, the PPF’s funding ratio had fallen to 88%, from 91% a year earlier. The PPF funds itself by taking over the assets of schemes which fall under its remit and by charging an annual levy on all corporate pension funds eligible for help.

In total, there are 166 schemes in the PPF. Some 47,610 people are now receiving, or will receive, compensation in the future. The PPF has paid out a total £179 million in compensation so far, with the average yearly payment reaching about £4,000.