The Pension Protection Fund (PPF) has clarified its new Statement of Investment Principles (SIP) for Pensions Age, in response to accusations from the industry that the new strategy is not transparent.

The key principle underlying the new strategy, the PPF said, is that it will retain its low risk investment philosophy, keeping a risk at four per cent, as before.

"To achieve the 1.8 per cent outperformance we wish to retain some flexibility to express that investment risk, that's why our investment allocations are less prescriptive than before," said a spokesperson. "The increase from 1.4 to 1.8 will be derived from sources including credit (albeit of high quality, and spread globally), active manager skill, and illiquidity premia."

The answers follow calls from Lane Clark & Peacock (LCP) for the PPF to clarify the Statement.

LCP also asked to what extent the PPF is now exposed to sterling volatility, to which the PPF answered: "Our assets will be hedged to sterling, but we do have some flexibility to take tactical decisions, as long as this is within the PPF's low risk appetite."

The PPF plans in the near future to move its asset allocation away from a specific allocation to UK equities, and to global equities only. These will be hedged back to sterling, and the PPF said they expect the move to global to reduce its exposure to UK companies, therefore reducing their risk.

"Eventually - now immediately because we need to identify appropriate opportunities which we believe will meet our criteria - we will recycle some of this global equity allocation into secondary private equity investments. Our risk might rise again slightly, but it will not be a large allocation and we expect an increase in overall return," the PPF said.

Gavin Orpin, head of trustee investment consulting at Lane Clark & Peacock, who called for the clarification, said: "We welcome the PPF's prompt response, are pleased with the additional clarification and look forward to such clarity in future Statements of Investment Principles."

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