A senior DWP official once described Nest to me as “the home team”. I guess they must feel the same way about the Pension Protection Fund.
Both Nest and the PPF are hugely successful in fulfilling their briefs but they have had home side advantage. Nest has had a huge subsidized DWP loan, the PPF has been able to set a levy from the pensions industry that has proved more than adequate to help fund the shortfall of assets backing the liabilities they have taken on.
Home side advantage works until you start playing away and I’m very pleased that David Taylor and Shalin Bhagwan will be “playing away” at the Pension PlayPen coffee morning today at 10.30 (registration details below).
Is the PPF up for playing competitively?
This is a daunting task. This blog has seen some strong objections to its plan to become a consolidator of schemes other consolidators don’t want. Unsurprisingly, there being no consolidators consolidating, this is a pretty big market with the main opposition sitting on the other side of the draw (the insurance companies).
There is clearly demand among many occupational schemes not to sell out to insurers. Trustees are increasingly aware that buy-out may not be in the best interest of members, especially where there is an unallocated surplus to distribute. Many trustees would like to see a better home for their assets than the bond portfolios of insurers and see consolidators as natural successors. If not us – them.
But the PPF are going to have to convince trustees that they can win matches away as well as at home. The PPF has had a largely successful investment track record. But it did- by its own admission- get over exposed to LDI and missed the opportunity to take down leverage when it could (one of the few funds brave enough to admit this).
Shalin Bhagwan – its new chief actuary (speaking today) is known as a “de-risker” and he can expect questions on his appetite to run risk within the PPF , if it chooses to become a consolidator. Winning away means taking certain risks which the PPF are not used to taking.
Should the PPF be trying to play away?
A second question, which might precede the first, is whether the PPF, advantaged as it is with the support of the DWP and protection from TPR should be competing for business at all.
The insurers are supposed not to be interested in smaller schemes, but firms such as K3 and Cartwright are placing business with insurers like Just and Canada Life, where scheme assets are less than £10m. Not all small schemes have deficits, poor data or illiquid assets, many are attractive to smaller insurers (we have another debate with Shalin on Thursday where K3 will no doubt argue their case better than I can)
The much discussed and promoted superfunds are not in such a happy state. Clara seems at a standstill (though approved) while Pension Superfund has noisily mothballed itself until TPR and DWP come up with regulation and legislation that allows it to compete on a level playing field.
Without Clara and Pension Superfund and with no other potential superfund in sight, the PPF might not need to play away and indeed compete for consolidator status. It could, if the situation for commercial players does not improve become the unopposed consolidator left to fight the insurers on its own.
This does not sound good for competition. Expect questions this morning about whether the PPF are being allowed to compete in a league of one- where every game is a home game.
The Mansion House Reforms and a competitive market
This blog has published the views of the Pension Protection Fund on their capacity to become a DB consolidator – as proposed by the Tony Blair Institute and discussed in the DWP’s recent consultation on DB options.
The PPF’s avowed intent to put itself forward, not just as a lifeboat , but as an alternative sponsor to employers with solvent schemes which are commercially unviable has attracted some sharp comment.
Rather than ducking the criticism, Shalin Bhagwan and David Taylor, senior members of the PPF, have agreed to spend an hour with the Pension PlayPen community today – Tuesday 3rd October at 10.30 am. I will be making introductions and moderating questions, of which I expect there to be many,