PPF could postpone 2030 funding goal amid Covid-19 crisis

The lifeboat scheme was 118.9 per cent funded with reserves of £6.1bn in 2019, but continues to source part of its funding from a levy charged to solvent schemes. The PPF collected £561m in levy fees last year, but has previously aimed to eradicate its dependence on this by 2030.

Sara Protheroe, chief customer officer and member of the PPF's board, told Pensions Expert that the PPF is “absolutely ready” to receive more claims from struggling pension schemes as a result of the current crisis, as it holds strong reserves and follows a risk-averse investment strategy.

Nevertheless, the PPF is prepared to make some changes if necessary in reaction to the current crisis, which has seen market volatility shoot through the roof and trustees encouraged by the regulator to consider a three-month deficit contribution holiday for their sponsors.

Postponing the goal of being self-sufficient and 110 per cent funded by 2030 is “absolutely an option”, revealed Ms Protheroe.

I don't think we need any kind of knee-jerk reaction to changing circumstances, we plan for the long term and that is what we will continue to do

Sara Protheroe, Pension Protection Fund

She said: “There isn't anything magical about 2030, it is something that the board analyses every year – if it is the appropriate funding horizon – so absolutely that would be one option to consider.

“But we have been able to hold that steady for some time, and there are no indications at the moment that we will need to move it.”

Ms Protheroe explained that it is more likely that the pensions lifeboat will consider its funding strategy by the end of 2022, when the current strategic plan ends.

“We know that we will need to be looking ahead to the future beyond 2030, and that was always part of our strategic plan and remains so.”

DB deficits continue to widen

The PPF’s own figures show how the DB universe it was created to back up is increasingly struggling – the deficit of the 5,422 schemes in the PPF 7800 Index stood at £135.9bn at the end of March, an increase of £11.3bn when compared with the previous month.

The shortfall, measured against the level of assets needed to secure PPF-level benefits with an insurer, has been increasing since December, when it stood at £10.9bn.

The funding ratio is now at 92.5 per cent, down from 93.2 per cent in February. Last December, it stood at 99.4 per cent.

Vishal Makkar, head of retirement consulting at Buck, argued that businesses failing amid the lockdown would mean the PPF “could end up taking on a large numbers of sponsor failures, an outcome which could have devastating effects for both retirees and current employees all over the country”.

Ms Protheroe guaranteed that the lifeboat is “absolutely ready” for more schemes ending up in the PPF.

“We have a model we use in the organisation to look at a whole range of potential futures, and we feed in a million different economic scenarios into that model, so we are always planning for a whole range of different scenarios – this feeds into the probability of success figure that we give in our annual report and accounts, which last year was 89 per cent," she said.

“We've got a real confidence about the future. We are considering the particular circumstances that we are in now but we remain confident that we will be able to deal with whatever comes our way.”

PPF ready to take in more schemes

With £6.1bn in reserves available and the option to raise further levy income, Ms Protheroe noted that missing its payment commitments to members is not at all likely.

Nevertheless, the lifeboat is preparing a plan to adapt its administrative processes, in the event that it receives far more claims than its basic assumption.

The lifeboat could make extra use of the firms that sit on its various assessment period panels, which provide a variety of services including audit, actuarial, administrative, trustee and legal services.*

“At the moment, we've agreed a certain balance of responsibilities – the PPF could possibly ask the firms to do a little bit more for us than they usually do, to help us cope if we were to receive a higher than expected number of claims,” Ms Protheroe explained.

On average, schemes pass through the assessment period in 18 months.

“It's possible that, if were to receive a larger number of claims, we might need to take a little bit longer, maybe more like the two-year target,” said Ms Protheroe.

However, she insisted: “These are plans for an eventuality that we're not anticipating... I don't think we need any kind of knee-jerk reaction to changing circumstances, we plan for the long term and that is what we will continue to do.”

*This article has been corrected to include all PPF's assessment period panels.