The UK’s Pension Protection Fund (PPF) reported invested assets of £28.7 billion for 2017, up from £23.4 billion last year, according to the pension safety net’s recently released annual report.
“Our robust strategy has put us in a good position to manage the uncertainties ahead,” said Alan Rubenstein, chief executive of the PPF. “Our long-term risk model predicts that we will achieve financial self-sufficiency by 2030 in 93% of scenarios.”
As a result of strong investment returns, combined with lower–than-expected claims, the PPF’s funding ratio has increased to 121.6%, from 116.3% last year, and its reserves have increased by £2 billion to £6.1 billion.
“Although building a reserve helps to protect the long-term sustainability of the fund, allowing us to meet future claims,” said Andy McKinnon, chief financial officer of PPF, “the current figure remains modest relative to the net deficit of the schemes we protect, which stood at £226.5 billion, £295.4 billion excluding schemes in surplus, at the end of March 2017.”
The PPF is funded by levies on eligible pension plans, PPF’s investment returns, assets from the plans the PPF takes on, and recoveries from insolvent employers. The PPF said 62 pension plans transferred over the course of the year, bringing new assets of £1.3 billion. Investment returns contributed another £1 billion, and the PPF collected £585 million in levies.
“We have invested according to our investment strategy and our target level of risk,” said McKinnon. “Our hedging program has continued to perform successfully, ensuring our liability-driven investments have kept pace with highly volatile markets over the year and protecting us from fluctuations in interest rates and inflation.”
The PPF said its growth portfolio performed “very well” over the past year.
“Overall, we have maintained a healthy financial performance,” said McKinnon. “We continue to be resilient against economic uncertainty and we are well-positioned to face continuing uncertainty from our operating environment.”
The PPF said that in order to ensure it has sufficient funds, its investment strategy incorporates a diversified portfolio of assets within a liability-driven investment program. Additionally, the PPF’s assets are required to outperform its liabilities by an annualized 1.8%, on a three-year rolling basis.
“Over the last three years, we have done better than this, with an average return of 3.3% each year, representing an annualized outperformance of 1% over our investment target,” said Barry Kenneth, CIO for PPF. “This investment performance has seen our reserves rise year-on-year from £4.1 billion to £6.1 billion, continuing to support the likelihood (93% at the end of March 2017) of achieving our aspiration to be fully funded by 2030.”