As Carillion goes bust, First Actuarial shows PPF can take the strain.

FABI Jan18

Carillion’s dramatic and sudden insolvency is likely to push its 13 defined benefit (DB) schemes, and their 28,000 members, into the Pension Protection Fund (PPF). However, as reports emerge of a combined section 179 (s179) shortfall of as much as £0.9bn, First Actuarial says that the PPF is well-equipped to absorb this.

As at 31 March 2017, the PPF was 121% funded with £6.1bn of reserves. The impact on the PPF’s reserves of Carillion’s DB schemes falling into the PPF is likely to be lower than £0.9bn, as the PPF doesn’t fund itself on the same assumptions as those used in a s179 valuation – which is used to determine the PPF levy for individual schemes – and there may also be some debt recovered.

According to the PPF 7800 Index, at the end of December 2017, the 5,588 PPF-eligible DB schemes had an aggregate deficit of £103.8bn. Of those 5,588 schemes, 3,710 schemes were in deficit to the tune of a combined £210bn. On the face of it, this points towards a bleak future, prompting the CEO of a large independent financial advisory firm to ask: “how many more big hits can the PPF take?”

But what these snapshot figures hide, is that the PPF continues to go from strength-to-strength, and the financial position of the UK’s 6,000 DB schemes remains healthy.

For example, the PPF’s reserves at 31 March 2017 were £2bn higher than the previous year, as a result of strong investment performance, income from levies and lower than expected claims volumes, and the PPF remains on target to be “financially self-sufficient” (or levy-free) by 2030. In addition, according to the PPF 7800 Index, the number of DB schemes in surplus on a s179 basis has increased from 1,482 out of 5,794 (or 26%) at 31 March 2017, to 1,878 out of 5,588 (or 34%) at 31 December 2017.

First Actuarial’s Best estimate (FAB) Index – which provides the best estimate position of the UK’s 6,000 DB pension schemes calculated using the best estimate expected return on the assets held by those schemes – remained strong over December, with a month-end surplus of £357bn, and a healthy 129% funding ratio.

First Actuarial Partner Rob Hammond said:

“It is a sad day for the 20,000 UK employees of Carillion whose future remains uncertain. But it is important that Carillion’s pension scheme members (and members of other defined benefit schemes) know that their pensions are protected.

“The PPF can take the strain of Carillion’s £0.9bn section 179 shortfall – the actual impact on the PPF will be lower than £0.9bn – and it is well-equipped to cope with any future insolvencies. The financial position of the UK’s remaining 6,000 defined benefit schemes will also improve over time as companies continue to plug funding deficits.

“So, we urge members not to fall for scaremongering from unscrupulous advisers using situations like this to encourage people to transfer out of their own valuable, defined benefit schemes.”

  FABI Jan18




The technical bit…

Over the month to 31 December 2017, the FAB Index remained stable, with the surplus in the UK’s 6,000 defined benefit (DB) pension schemes falling slightly from £358bn to £357bn.

The deficit on the PPF 7800 Index worsened over December from £87.6bn to £103.8bn.

These are the underlying numbers used to calculate the FAB Index.

FAB Index over the last 3 months Assets Liabilities Surplus Funding Ratio ‘Breakeven’ (real) investment return
31 December 2017 £1,590bn £1,233bn £357bn 129% -0.9% pa
30 November 2017 £1,564bn £1,206bn £358bn 130% -0.8% pa
31 October 2017 £1,543bn £1,227bn £316bn 126% -0.7% pa

The overall investment return required for the UK’s 6,000 DB pension schemes to be 100% funded on a best estimate basis – the so called ‘breakeven’ (real) investment return – has fallen to minus 0.9% pa. That means the schemes need an overall actual (nominal) return of 2.7% pa for the assets to meet the liabilities.

The assumptions underlying the FAB Index are shown below:

Assumptions Expected future inflation (RPI) Expected future inflation (CPI) Weighted-average investment return
31 December 2017 3.6% pa 2.6% pa 4.0% pa
30 November 2017 3.6% pa 2.6% pa 4.2% pa
31 October 2017 3.6% pa 2.6% pa 4.2% pa



Notes to editors

The FAB Index is calculated using publicly available data underlying the PPF 7800 Index which aggregates the funding position of 5,588 UK DB pension schemes on a section 179 basis, together with data taken from The Purple Book, jointly published by the PPF and the Pensions Regulator.

The FAB Index will be updated on a monthly basis, providing a comparator measure of the financial position of UK DB pension schemes.

Rob Hammond is available for interview. Please contact:

Rob Hammond on 0161 348 7440 or, or Jane Douglas on 0161 348 7463 or



About First Actuarial

First Actuarial is a consultancy providing pension scheme administration, actuarial, investment and consultancy services to a wide range of clients across the UK.

We advise a mixture of open and closed defined benefit schemes with our clients concentrated in the small to medium end of the pension scheme market. Our clients range across a number of sectors including manufacturing, financial services, not for profit organisations and those providing services previously in the public sector.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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7 Responses to As Carillion goes bust, First Actuarial shows PPF can take the strain.

  1. Peter Beattie says:

    I would challenge your comment that over time a PPF pensioner could expect improvement over time! This is not true for anyone like me a ‘deferred pensioner of year 2000’ with no indexing due to FAS rules of ‘no service after 1997’. The FAS now under administration staff from the PPF has separate rules from them and responsible for financing from government. Henry, does the PPF offer indexing to its pensioners and is there ‘any cutoff’ for those deferred before 1997? Once you are in, one is stuck with current rules and no hope of the government offering any amendment or further help! As PPF is funded by commerce perhaps there may be some hope; leaving FAS members left ‘in the wilderness’!

    Peter D Beattie – FAS/PPF Pensioner and military veteran

    • henry tapper says:

      The PPF nears self-sufficiency, at some point it must start to consider its social purpose. I hope that it will eventually look to do more than simply secure people’s rights, but that is my personal opinion. I am someone who thinks of long-term investing as a means of buying into progress – and I believe in progress.

      As for Pre 1997 members, I hope they get fairly treated as part of this

  2. PeterCB says:

    if the liquidation of Carillion had occurred less than three month’s earlier we would not be talking about the pension schemes going into the PPF (if indeed they are actually going to do so) because it was likely the schemes at least in aggregate would have been sufficiently well funded to provide benefits at PPF levels. The significance is up to the 24th October the pension schemes ranked alongside subcontractors and other unsecured secured creditors including the banks (loans and overdrafts). On the 24th and 26th October 2017, in order to secure new finance for the Company, Carillion provided security to the banks in preference to the other creditors by providing them with fixed and floating charges over the assets of the company. I do not know what the eventual dividend to the unsecured creditors including the pension schemes will be (nor will anyone else for some time) and I have heard various speculations between zero and 6%, but it certainly will be lot less than it would have been if the downgrading of the security had not occurred.
    An “interesting” case study for Integrated Risk Management – was it in the members interest not to block the downgrading of the pension schemes security in the hope that the new finance would secure the company’s future and permit continuation of the deficit recovery payments?
    However it also shows that the PPF is likely to “profit” from Carillion not only being able to invest on an appropriate long term strategic basis, but also from the reduction in Members benefits which I think are likely to be quite substantial: Loss of future pension increases on pre 1997 service, and on service thereafter restricted to CPI<2.5%, instead of the 3.1% global increase assumption in the 31st December 2016 IAS19 valuation, the reduction to 90% accrued benefit for those members not yet at Scheme NRD, and the PPF annual pension cap at £38.5K p.a. All these factors combined with the £2+BN assets of the Schemes being transferred (if indeed the case) should put the PPF in a very strong position as it has done so with past entrants.

    • henry tapper says:

      I wasn’t aware of the steps taken by Carillon to keep going in October. I wonder if clearance for this was sought from tPR – do you know?

      • PeterCB says:

        I have no knowledge on whether tPR clearance was sought or not. My information arose purely from a Companies House search on Carillion (on behalf of a trade creditor not pensions related) which disclosed the charges being filed on the 24th and 26th October. This was worse news for my creditor, but fortunately Carillion was only a small part of its business!.

  3. Robert says:

    Good work Henry and Rob Hammond. My thoughts go out to the 20,000 UK employees of Carillion whose future remains uncertain but at least their pension scheme members know that their pensions are protected. There’s way too much scaremongering going on in light of recent events so articles like this showing healthy statistics give reassurance to members of other defined benefit schemes!

  4. Pingback: A Carillion warning bell on pensions – The Back Room

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