Pension Protection Fund to bring more investment and member services in-house

Out-Law News | 20 Jun 2017 | 4:44 pm | 2 min. read

The UK's pensions lifeboat fund will bring more investment, administrative and member services back in-house over the next three years, it has announced.

The move, which follows its decision to in-source certain member services and parts of its investment management in 2015, will give it greater control and flexibility, while ensuring that services are operated as efficiently as possible, according to Sara Protheroe, chief customer officer at the Pension Protection Fund (PPF).

The PPF made the announcements as part of its strategic plan for the next three years (21-page / 250KB PDF), which was published last week following the end of the 'purdah' period for public bodies in the run-up to the general election. It will in-source member services relating to the financial assistance scheme and parts of its private and public market credit portfolio, and will also review the case for insourcing passive currency hedging during the plan period, according to the document.

The plan sets out the PPF's financial projections for the next three years. It is anticipating around £32 billion in assets under management by 2020.

Pensions expert Stephen Scholefield of Pinsent Masons, the law firm behind Out-Law.com, said that the PPF was an increasingly sophisticated organisation, and that it had to focus on managing costs and risk as it continued to grow.

"With assets of around £30bn, the PPF is set to provide a secure income for 300,000 members," he said.

"Whilst its scale has enabled is to become a sophisticated operator, it also means that the risks it faces need careful management. As it looks forward to the next three years, and the uncertain economic outlook associated with Brexit, it rightly focuses on managing its operating risks and costs - which is good news for levy payers, as well as its members," he said.

The PPF provides a certain amount of compensation to members of eligible defined benefit (DB) schemes if the employer suffers a qualifying insolvency event, and where there are insufficient assets in the pension scheme to cover the amount of compensation that the PPF would pay. The scheme is funded by an annual levy payable by eligible DB schemes, which are schemes that promise a set level of pension once an employee reaches retirement age.

In the plan, the PPF confirmed that it would continue to evolve the insolvency risk model it uses to calculate the levy paid by firms, which it said would "ensure the levy is as reflective of risk as possible". It consulted earlier this year on changes to the levy methodology, including for small and medium-sized businesses and not for profit businesses; and incorporating credit ratings into its calculations for the largest employers. These changes would come into force in time for the 2018/19 levy year.

PPF chief executive Alan Rubenstein said that the scheme was operating in an environment containing "many uncertainties".

"We have a good understanding of our risks and mitigate them where they are within our control," he said. "However, the future performance of the UK and global economies, and the volatile funding levels among the schemes we protect, pose particular risks."

"Nevertheless, we are confident that our funding strategy puts us in a good position to face the future," he said.