The length of defined benefit recovery plans presents a “significant risk” to the Pension Protection Fund, according to the lifeboat fund’s chief risk officer Hans den Boer.

In its Annual Reports and Accounts, published 7 July, Den Boer explained that external risks are monitored through its PPF 7800 Index and Long Term Risk Model. He noted that the PPF 7800 Index has been “particularly volatile” over the last year, attracting media attention on the subject of DB sustainability.

The aggregate deficit of DB schemes reached an all-time high of £413bn at the end of August 2016. Den Boer said that while the figure has “reduced significantly” since then, low gilt yields and interest rates continue to impact scheme funding levels.

“Although our funding position remains strong in relation to our compensation liabilities, the risks to the PPF are real. The average recovery plan length has not reduced in the last decade, and the fact that deficits are not being closed presents a significant risk to the PPF by increasing the potential for future claims,” he said.

“We work closely with TPR and others to reduce their impact but we believe some targeted improvements to TPR’s powers are appropriate, as we set out in our response to the government’s green paper on the DB pension system.”

Furthermore, PPF chairman Arnold Wagner, wrote in the report that there are “considerable risks” to the DB system, however he does not believe a “radical overhaul” is necessary.

“Given our recent experience, we believe that certain aspects of the system could be developed to improve outcomes for all stakeholders through better management of risk. For example, we would welcome measures to encourage clearance applications in those instances where there might be cause for concern, and we have suggested the introduction of punitive fines for employers who are found to have avoided their responsibilities in this regard.

“We also recognise that many small employers face particular challenges with the costs of running their pension schemes. As we have previously said, consolidation could be the best long-term solution and we support further investigation to help find a practical way of doing this,” he said.

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