The PPF could grow up a (C)DC lifeboat

One of the enduring features of the last ten years is Andy Young texting me “this is all getting too much, I think I’m going to retire”.

Among the many things that Andy has created – he is a great procreator – is the PPF. Thankfully Andy has seen his baby grow from a twinkle in the DWP’s eye to a robust teenager which will be 15 in April.

Andy is married to Sara who is the Chief Customer Officer of the PPF. She is his boss and the kind of boss I’d be happy to work for. She actually works for Oliver Morley who is the CEO and the PPF is a happy child.

The PPF has around 250,000 members. You can see the schemes it looks after here.

In its last 2018/19 report , the PPF showed just how fast it was growing up

It’s school reports show it’s doing what is asked of it

and this against a background of falling gilt yields which have catapulted liabilities ahead of assets

The PPF has grown strong by hedging its liabilities using a derivative strategy which accounts for around 45% of its assets, the “return seeking assets are in bonds and a small amount of equities”.

This baby-food has been nutritious and has kept the young child healthy despite the economic headwinds it faced in its early years (it was only 2 in 2008).

The economic climate impacting Britain’s DB schemes is still unhelpful and – despite a brief period in positive territory in 2018, Britain’s DB schemes are still an unhealthy lot.

But every month, the PPF publishes its numbers, telling us how the rest of the class are doing and reporting on the financial health of our funded DB plans

 

Britain’s other pension success story

We are getting used to being told what a great success story auto-enrolment has been. But the PPF could equally deserve that title. While auto-enrolment is still a toddler, the PPF is proving year after year, its critics wrong.

There are many (including me) that it is over-fed by levies and could easily become lazy and obese from over indulgence. This pie chart does not show it sufficient.

That 23% subsidy from “the levy” has been at the expense of the solvency of the rest of the funded defined benefit sector.

However , there will become a time when the PPF will be off its parents hands and ready for its adult role. The thought back in 2005 was that the PPF would be sufficient by 2030, When Oliver Morley took over in 2018 he told the FT that the PPF should easily meet its target and might even start to give back money to the remaining DB schemes not in its care. As I wrote five years ago, the PPF is a great British success story.

What will the PPF grow up to be?

I look forward to the day when the PPF can get to adulthood, reduce its levy to nothing and start working out what it’s going to do beyond paying a dividend to its funders.

I have some ideas about that , that I haven’t talked about on this blog for a long time. My hope is to find some new Andy Young , with that man’s insane energy , vision and charisma , who will turn round to Government and convince them that the PPF is the natural home of the CDC pension.

If you’ve read this far, you won’t be shocked by my optimism. I am optimistic that in decades to come, the PPF will pay DC savers scheme pensions at a rate above the prevailing annuity rate and that these scheme pensions will be available as the destination of an investment pathway.

I won’t go into the detail here, you may want to try to think through the mechanism (if you are an aspiring Andy Young).  But if we are to see the PPF for what it could be, then it has to have a place for all pension savers.

The PPF could grow to be a CDC lifeboat over time.