Pension Protection Fund chief executive Oliver Morley reflects on how the lifeboat fund’s story began, how far it has come since, as well as looking to its future.
The pensions landscape looked very different 18 years ago when we first opened our doors. Back then, pensions were mostly held in defined benefit schemes. We then protected more than 7,800 schemes, many of which remained open to new members and accrual, comprising 10mn members.
Today, most of the 5,000 remaining DB schemes are closed to new members and accrual.
It is remarkable to think that, before the PPF, if you were a member of a DB scheme you would have stood more chance of getting your money back on a cancelled holiday than if you lost your pension through sponsor insolvency
That same year, the Turner Commission published its landmark report, which would lead to a transformation in pension saving, with the eventual introduction of auto-enrolment. This would result in a dramatic expansion of workplace saving, with millions of new savers enrolling mainly into defined contribution schemes.
The need for a safety net
Our story began in the 1990s and early 2000s as public interest in pensions grew, following a string of companies becoming insolvent leaving underfunded pension schemes.
It is remarkable to think that, before the PPF, if you were a member of a DB scheme you would have stood more chance of getting your money back on a cancelled holiday than if you lost your pension through sponsor insolvency.
Members in these situations could face a significant loss of benefits and be left facing genuine financial hardship in retirement.
With more high-profile cases hitting the headlines, the people who had lost their pensions started to campaign for some form of redress and protection. The campaign gained traction and, with cross-party support, the Pensions Act 2004 was passed by parliament.
The act created the PPF and set out the statutory basis for how we are organised, how we levy schemes, and the levels of compensation we pay to members.
Building credibility takes time
In our infancy, we faced challenges, both gearing up operationally and building understanding and confidence in our role in the industry. No sooner had we launched than we faced our first major claim – our first few weeks were occupied with the insolvency of MG Rover – a timely reminder of why we had been set up.
Only a few years later, there was the financial crisis, which again put the PPF in the spotlight as businesses failed and savers worried about whether their pensions were secure.
From these small beginnings, the PPF has grown to become a major financial entity and an established part of the pensions landscape. We now have £39bn in assets under management, have rescued more than 1,000 schemes comprising 300,000 members, and continue to protect those in the remaining 5,131 eligible DB schemes.
Reflecting our unique role – we are in effect a hybrid of a pension scheme and an insurer – we have over time built up our capabilities and skills. We have insourced our member services and investment operations, allowing us to have more control over the service members receive and the money we manage.
We have also built strong relationships with industry. Through our panel system we get schemes as quickly and efficiently through our assessment process as possible, and our levy has significantly evolved over time to reflect the individual risk posed by schemes.
It’s all about sustainability
Today, the PPF is well placed – we are in robust financial health and have built strong foundations for the future. We remain ambitious on behalf of our members, levy payers and the millions of DB scheme members we protect.
We must continue to deliver excellent service to our members and levy payers. We are continuing to build on our well-established responsible investment approach to play our role as a major asset manager in the greener economy.
We are working on a broader, holistic sustainability strategy, which will include how we are approaching diversity and inclusion and making a positive impact in our local community. We also continue the complex work to implement various legal rulings relating to our compensation framework.
Looking to the future, we expect that the DB sector, and we as an organisation, will continue to mature and adapt to the new opportunities and challenges facing the sector.
A recent departmental review of the PPF made recommendations, including one that we explore with the government how we could use our unique capabilities and skills in other ways for public benefit and share our expertise and knowledge with the wider industry.
As we move into the next phase of our journey, we will continue to serve our members, collaborate with industry, and play our part in securing safer futures in the evolving pensions landscape.
Oliver Morley is chief executive of the Pension Protection Fund
