Recently , I have heard of some boards of trustees who have chosen for their scheme to go into the PPF rather than soldier on with the help of an assisted covenant.

While the Pensions Regulator claims it is looking to establish capital backed journey plans to enable member benefits to be paid in full, the PPF appears to have a strange magnetism despite it reducing member benefits with its “haircut”.

I use the word “strange” as I don’t understand the attraction of the PPF, but then I don’t understand magnetism or love either. The Pension Regulator has always argued that the PPF was something that should be protected, a home for basket-cases that even the backers of capital backed plans could not salvage.

In 2017 I watched as a Regulatory Apportionment Agreement was put in place for BSPS, that kept BSPS out of the PPF (other than the very few members who elected to go into it at the time to choose). I now know that there was an offer on the table to the trustees that would have allowed the scheme to have “rolled on”. If BSPS had been rolling on today, we would be talking about its surplus not the PPF. The RAA was never any more than a bridge to buy-out.

The bridge to buy-out , a phrase associated with a superfund that aims to prolong the life of a scheme till it can afford to become an insurance policy and “buy-out” does not seem to me the gold standard. The gold standard is the fully functioning occupational scheme capable of supporting itself through a sound investment strategy built on self-confidence. Look at USS, Railpen – I look at BP in hope. Such schemes should not regard themselves as an economic liability to their sponsor but as an asset capable of paying more to members as well as contributing to the well-being of the sponsor(s).

Indeed a well run Defined Benefit pension scheme can aspire to be self-sufficient of the sponsor when it triggers certain funding barriers, even returning capital instead of soaking it up. Many forget that the concept of self-sufficiency is not just the negative capability of a scheme surviving without a sponsor, it is the positive capability of giving a sponsor a rest. Much as we berate scheme’s that took contribution holidays in the last century, we must remind ourselves that it was a period of economic growth. Compare and contrast the past fifteen years of austerity and risk-reduction.

Those occupational trustees having to choose between running on with a co-sponsor or folding into the PPF, have to account not just to the members for their pension haircut, but to Government for abdication of responsibility for the assets they invest. Trustees are stewards of those assets which have the capacity to matter in terms of the environment , society and good governance. It might be argued that the PPF can be  good stewards but that was not what the PPF was set up for. If we have decided that the PPF is a superfund, then that should be news to the PPF whose objective is still to protect the PPF from being gamed!

Why are trustees choosing the PPF rather than an assisted covenant?

The primary responsibility to trustees is to their members, to do no harm nor allow harm to be done. For a scheme to voluntarily enter the PPF when an alternative is available looks like a clear breach of the fiduciary duty.

There must be something pretty wrong with the offer (s) on the table for a trustee to choose not to soldier on. There must be something pretty strange going on at the Pensions Regulator, to promote capital backed journey plans on one hand and  see them rejected on the other.

I find this “strange” and it’s frustrating that while we talk about the Mansion House reforms, we choose instead the quietest graveyard. All is not lost, schemes can come out of PPF assessment as Debenhams recently has, but the PPF needs not be bothered where a scheme can demonstrate it can run on with a co-sponsor.