The Pension Protection Fund (PPF) hopes to be financially self-sufficient by 2030, according to the first publication of its long-term funding strategy.

In addition to being fully funded by 2030, the PPF hopes to eliminate exposure to interest rate, inflation and other market risks, and will build up a reserve to protect itself against future claims and longevity miscalculations.

“This strategy makes public the work we have been doing behind-the-scenes since we opened our doors for business more than five years ago,” commented Alan Rubenstein, PPF chief executive.

“We think it is important that we expose our plans so we can show how we intend to ensure we have the financial resources needed to pay existing levels of compensation to current and future members of the PPF – and become self-sufficient by the time the level of risk to the PPF from future insolvencies has reduced substantially.”

The target the PPF has set itself for funding will be met by a combination of investment returns, proceeds from the assets of schemes brought into the PPF, and through the continued collection of the annual pension protection levy from eligible pension schemes.

Rubenstein told Pensions Age: “We start today in a position where we are not 100 per cent sure of having the money, but we have a target of in 20 years’ time to have 110 per cent of liabilities, which means that we will have hedged all our risk apart from longevity. We need to get the balance right because being 100 per cent sure now would mean putting levies up, and we do not want to do that. We are sitting today with a target of 80 per cent sure of getting it. It is actually currently 83 per cent. We don’t know for sure if we will be using CPI rather than RPI, but if you assume it goes ahead, that would increase our chance of hitting our target by around four or five per cent – from 83 per cent up to 87.5 per cent.”

The publication also aims to reassure members and to provide certainty for levy payers.

“We believe this will further reassure our members, now and in the future, that their compensation comes from a stable and trusted source,” added Martin Clarke, executive director of financial risk. “It will also provide greater certainty and predictability for those who pay the pension protection levy by clearly showing how we expect to meet our liabilities as the number of levy payers and the real value of levy receipts falls over time.”

The National Association of Pension Funds (NAPF) has welcomed the strategy, but is cautious about the levy and the effects the RPI/CPI changeover will have.

“As the PPF admits, the switch from RPI to CPI will have a great impact on its funding strategy,” explained Joanne Segars, NAPDF chief executive. “That must be reflected in the levies that companies have to pay.

“Also, the Government must acknowledge that it is the guarantor of last resort for the PPF, should their long-term plan not be realised.”

Segars said short-term issues must be addressed, with the reform of the risk-based levy top of the list.

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