PA Annual Conference 2020: PPF expects increase in claims in the autumn

The Pension Protection Fund (PPF) expects the number of defined benefit (DB) schemes issuing claims with the pensions lifeboat to increase in the autumn once government support measures begin to be withdrawn.

Speaking at the Pensions Age Annual Conference 2020, PPF chief risk officer, Stephen Wilcox, said that there were “clouds gathering” due to impact of Covid-19 on employers, following a “relatively benign” August.

“We are expecting to receive more claims come the autumn,” he stated. “That is especially once all the various government support measures, the loan schemes, furlough, delays to various taxes, begin to be withdrawn.”

Wilcox added that the PPF was actively monitoring the situation and was working with The Pensions Regulator (TPR) to address the risk.

The potential outcome of the government consultation on aligning the Retail Prices Index (RPI) with the Consumer Prices Index including owner occupiers’ housing costs (CPIH) was also cited as a near-term risk to the PPF’s and DB schemes' funding.

“It is a fairly near-term risk, in that the government is currently consulting on effectively setting the wedge between RPI and CPIH to zero,” continued Wilcox.

“We have CPI liabilities, but we need to use RPI for our hedging programme because the CPI hedging market is not particularly liquid, so we are exposed to changes in the wedge between the two.”

He noted that if the inflation measures were aligned, it would result in a “hit” to the PPF’s balance sheet and to the balance sheets of some of the schemes it protects, and the PPF is considering how to respond.

Although the PPF is monitoring these short-term risks, Wilcox stressed that it and the industry must not “lose sight” of the long-term risk of climate change.

“It is potentially the biggest risk to investment markets and to the world economy over the next few decades that any of us can even conceive of,” he stated.

“Like many schemes, we are continuously reviewing how to manage climate change risk.”

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