The Pension Protection Fund is a national treasure. Sponsored by the levies of over 5,000 hard pressed employers, it has now built up a notional surplus of £13.2bn in reserves needed to meet the near £19bn of pensions it is demanded to pay under its rules.
In total it has £32.1bn of funds which have grown since inception by 7.2% pa. Its latest accounts which run to 187 pages – explain not just its financial progress but its increasing importance to the country
By any measure, the PPF is a national treasure and while experts argue that it little needs more funding from future levies and that last year’s asset growth was less than spectacular, the PPF is working well. Like all good administrators, it is successful because we do not hear about its administration.
It has quietly taken back the functions that it outsourced and now runs itself and its own money.
It has in Michelle Ostermann, a dynamic Canadian CEO , known to the market as ambitious. One of my colleagues remarked that she wouldn’t have taken the job if she didn’t mean business.
The PPF was created to ensure that if our pension scheme gets into trouble, there is a safety net to pay if not all, the vast majority of the benefits we were originally promised.
But it can do much more. It can be a source of productive finance for innumerable projects and be a national wealth fund for the country. Former Lord Mayor and Chair of Phoenix, Nick Lyons, wants the Government’s National Wealth Fund to grow to a size where it can secure with funds the promises paid to the NHS staff.
The PPF might be considered Pensions National Wealth Fund. It may not have quite such lofty ambitions but it has the solvency and administrative capacity to work harder.
In my view, funded as it is by the private sector, it should be working for the private sector. I hope that the Government will enable it to become a partner to , rather than just a lifeboat for, occupational pension funds.
It is a national treasure, it should be telling its story at PLSA conferences and it should be putting its considerable weight behind the growth story that pensions can and should be telling.
In a week that is likely to define pensions as well as Government policy for the next five years, the PPF should be a major player.
Compare the asset allocation of Norway’s Pension Fund
as of the end of June, the NPF’s asset allocation was 72.01% equities, 26.15% fixed income, 1.73% unlisted real estate and 0.11% unlisted renewable energy infrastructure
https://www.nbim.no/en/the-fund/returns/
with the PPF’s use of “conservative LDI”, £15bn net of matching assets and only £17bn in growth assets;
the detail buried away on pages 132 and 138.
That’s interesting. I wonder if ‘conservative LDI’ means uk govt gilts; if so that is akin to ‘unfunded’ ( ie to be paid by future tax payers!?), leaving the pensions to be paid by the growth assets.
Either way it continues to extract £000m’s of not required levy contributions from businesses just because it can. Hopefully will become more accountable with age!
An important issue that should be born in mind when looking at the PPF is it’s treatment of its members, i.e. current and future pensioners. The major problems are first, the limits on pension increases; and second, the limits on coverage. The bigger the surplus, the bigger these issues will become.