Despite taking on pension schemes from employers including Carillion, Toys R Us and Hoover, with deficits totalling £1.2 billion – the highest total value to date, the PPF’s funding position has strengthened.
The PPF has reported a continued growth in its reserves to £6.7 billion and an increase in its funding ratio to 122.8 per cent. It has also reported a strong investment performance ahead of target with a 2.8 per cent investment contribution despite significant market volatility.
Oliver Morley, Chief Executive of the PPF, said:
‘‘The PPF remains resilient within a volatile economic landscape, and continues to provide valuable protection for 11 million pension scheme members. This year, more than 60,000 people are better off because the PPF exists following insolvency events that affected their defined benefit pension.
“While we remain strong, we are not complacent. We remain focused on becoming more efficient and effective for our members and levy payers.’’
Infact Oliver Morley said more than that, for the first time asking us to think what might happen as and when the PPF moved beyond where it no longer needed the support of a levy (self-sufficiency) and started generating money to give back.
There are many for whom the concept of “surplus” is heresy; such people see a ratchet of certainty leading to the PPF being funded on a buy-out basis. The only organisation in the UK capable of buying out the PPF, even at its current size, is Her Majesty’s Treasury. No doubt they would be comfortable meeting PPF liabilities with the immediate reward of a buy-out valuation but that would represent one of the biggest transfer of value from one group of stakeholders to the tax-payer in British economic history!
The PPF cannot be allowed to become a gilts funded uber-secure fund. It is an investment fund, should be invested with strong social purpose and it should distribute any surplus prudently and in an agreed fashion.
Why the PPF has to take risk
In order to achieve a surplus, the PPF will have to take on risk. In its report and accounts (P36) it explains
The PPF has identified four key categories of risk to us delivering our organisational objectives. These are financial, operational, funding and strategic. We have set out our risk appetite for each of these, and we monitor them closely. We have a clear framework which allows us to take appropriate risk to achieve our objectives without jeopardising our ability to operate.
If only all statements were as clear and elegant!
the PPFs objectives are set out as follows.
From this we can see that beyond 2030 (only 11 years from now), the PPF has no long term objective. If all we want the PPF to do is to become self-sufficient then we take a view – like Rob Reid – that we should abolish all talk of deficits and surpluses and put the fund in lock-down.
But of course, the PPF can no more abolish deficits than Gordon Brown could abolish “boom and bust”.
Any financial projection on an enterprise the size of the PPF is dependant on things happening well beyond its scope – or even that of the Chancellor of the Exchequer.
We go forward as an Enterprise Nation , accepting there is risk that our endeavours will not work , we will not see gross domestic product increase, we will not become more efficient or work more, we will not be valued for the labour we do. There are many scenarios where Britain’s economic future may fall below our expectations.
But we plan on the expectation of success and not on the expectation of failure. The PPF must plan on the expectation of success and mitigate the possibility of failure. That is what i see the statements it is making saying.
So what do we do with pension good news?
Assuming we expect success (and that means surplus), there are three obvious candidates to receive back the excess money
- The tax-payer – who set the PPF up (but does not insure it)
- The surviving employers – who have been paying the levy
- The members – who took an haircut on entry and may now get back to parity to pre-insolvency expectations.
I am not so stupid as to pretend I know which candidate should get what. But I think that Oliver Morley is absolutely right to ask us to begin that process.
If nothing else- considering the upside of pensions will be a welcome relief from so much doom and gloom over the past 20 years!