PPF pays out £1bn but fraud compensation claims raise concerns

Strong investment performance coupled with risk management saw much of the impact of the Covid-19 pandemic mitigated, the report published on Monday showed, as the lifeboat’s funding position increased by 13.9 per cent to 127.3 per cent.

Its reserves likewise increased to £9bn, having fallen as low as £5.1bn at the height of the pandemic.

The PPF’s strong performance carried over into its investments, with assets under management growing from £36bn to £38bn, and its growth assets up by £3.7bn, or 17.6 per cent, which the report said was the largest return on this investment portfolio to date.

Our greatest risk remains the uncertainty around future claims following employer insolvency, especially in this challenging environment. Despite our strengthened funding position, we’re mindful that many of the schemes we protect have substantial deficits which could, if they were to claim, have a material impact on our reserves

Oliver Morley, PPF

The lifeboat fund’s probability of success, measured against its target of being self-sufficient by 2030, rose from 83 per cent in 2020 to 95 per cent in 2021, while the levy collected increased from £567m to £630m, despite the two-month interest-free payment extension offered to help alleviate the pandemic’s pressure on levy payers.

Generosity with the levy is likely to have an impact later on, however, the report noted. In September, the PPF extended its easement for another year and announced in its 2022-23 levy consultation it expected to collect £415m from its levy payers, a reduction of £105m from the £520m levy estimate in the previous year.

Oliver Morley, the PPF’s chief executive, said: “Our greatest risk remains the uncertainty around future claims following employer insolvency, especially in this challenging environment. Despite our strengthened funding position, we’re mindful that many of the schemes we protect have substantial deficits which could, if they were to claim, have a material impact on our reserves.”

Lisa McCrory, chief financial officer and chief actuary at the lifeboat fund, added: “Our priority remains to protect the financial futures belonging to our current and future members, and reduce the burden of future claims on our levy payers.

“Our exceptional investment performance over the past financial year has not only allowed us to improve our funding position and grow our reserves, but has put us in a very strong position to take on future claims that could materialise as a result of the pandemic,” she said.

“We hope our strengthened funding position will reassure our current and future members that we continue to be an essential lifeline for them, and we call on trustees of the schemes we protect to remind their members of the vital protection we provide so they know their pensions are protected if the worst were to happen.”

Fraud Compensation Fund a cause for concern

A note of caution was raised about the position of the Fraud Compensation Fund, however.

Following a court ruling in 2020 that scam schemes were eligible to make claims on the FCF, nine claims totalling £40m were received, with more expected following confirmation of eligibility criteria.

The PPF is “aware of” an additional 117 possible claims with a potential value in excess of £358m, but the FCF itself only has assets totalling £33.9m.

In April 2021, the FCF levy was raised to the maximum allowed by law of 75p per member and 30p for master trust members.

However, the report noted that “this levy alone would not be sufficient to fund all potential claims, should they crystallise, so we have been working with the [Department for Work and Pensions] to resolve the funding gap by securing a loan from the DWP to the FCF”. 

“The bill to enable funds to be loaned to the FCF has had its third reading. This loan and its interest would be repaid using FCF levy receipts over time. We are confident that funding will be obtained and that we will be able to pay claims as they settle,” the report stated.

“However, until the resolution of all matters regarding the loan including the completion of the required legislation, some uncertainty remains that we would be able to provide a continuation of service.”

Elsewhere, the report revealed that the pandemic had a significant impact on the number of overpayment write-offs, which jumped from 126 in 2019-20, amounting to £151,648, to 276 overpayments totalling £648,899 in 2020-21.

“In addition, 6,485 overpayments totalling £967,549 (2019-20: 3,705 totalling £551,277) were waived. The level of write-offs and waivers has been affected by increased member deaths, owing to the Covid-19 pandemic,” it stated.