PPF reserves up £400m despite market challenges

The Pension Protection Fund (PPF) has said that it expects its reliance on the levy to further reduce, after its 2022/23 Annual Report and Accounts revealed that reserves had grown to £12bn following strong investment performance.

According to the update, the lifeboat held total consolidated reserves of £12.1bn as at 31 March 2023, up from £11.7bn in 2022, while the funding ratio rose “significantly” to 156.0 per cent, an increase of 18.1 percentage points year-on-year.

The lifeboat also confirmed that its cash flow forecasts have indicated that cash and other asset inflows will “significantly exceed” outflows for the foreseeable future.

The PPF said that its strong investment performance over the past financial year played a key role in strengthening its financial position, revealing that, despite a challenging economic backdrop, the fund delivered a healthy return on its growth assets over the year of 1.9 per cent, above the benchmark used to measure performance against other funds.

However, it suggested that the strong growth in the funding ratio was mainly due to a “dramatic” reduction in liabilities, which fell by around 25 per cent over the year, due to an increase in interest rates observed over the first half of the financial year.

Increasing interest rates have also impacted the PPF's investments, however, as the PPF revealed that the assets under management saw a “sharp fall” over the year, falling from £39 bn to £32.5bn as at 31 March 2023.

News of the funding improvements follows on from the lifeboat’s recent decision to reduce the 2023/24 levy to £200m, with almost all (98 per cent) of schemes expected to pay less levy as a result.

Following on from this, the PPF confirmed that it intends to continue to grow its reserves above those needed to meet the financial resilience test in order to provide a higher level of protection to our members.

This approach is also expected to reduce the risk of funding being eroded in the future and the subsequent need to raise more funds through levy, with the PPF suggesting that any reserves in excess of those needed to meet the financial resilience test will instead predominantly be generated through a low-risk investment strategy.

Strengthening its financial position was not the only key target hit by the lifeboat, as the PPF confirmed that it was also able to maintain high customer satisfaction levels, as well as completing payments for the majority (80 per cent) of PPF and Financial Assistance Scheme (FAS) members needing an uplift as a result of the Hampshire judgement or uncapping.

Indeed, the annual account revealed that the PPF recorded 98 per cent member satisfaction for PPF and FAS and 96 per cent for levy payers.

The PPF confirmed that it also received a “relatively low” number of claims over the year, revealing that the size of these claims has also been very small.

However, commenting in the report, PPF chair, Kate Jones, emphasised that while claims on the PPF have been low over the course of the year, the PPF hasn’t become complacent.

“We’ve worked hard to support schemes where the employer has become insolvent, but the scheme can afford to buy higher benefits than the PPF would pay,” she continued.

“Our team works with specialist panel experts to help these schemes progress through the PPF assessment period as seamlessly as possible and help them secure the best possible benefits for members outside the PPF.”

Adding to this, PPF chief executive officer, Oliver Morley, stated: “As we mark the end of another eventful year, I am pleased to report that we’ve been successful in achieving our objectives for 2022/23.

“Despite all the challenges we’ve seen over the year, including market volatility, we’ve continued to deliver on our mission, move forward with our strategic plan, and meet our goals.”

“Our funding review gave us assurance that we could lower the levy without risking the security of our members’ benefits. Last year we reduced the levy significantly, and as we maintain our financial resilience, we expect our reliance on levy to further reduce.

“We trust our strong financial position and proven track record performing our role protecting DB schemes continues to give confidence to our current and future members, and levy payers.

“Government is currently seeking views on how DB schemes assets could be used to deliver good member outcomes whilst also supporting the wider economy.

"Our past experience in consolidating more than 2,000 schemes, and significant success in generating returns through growth assets whilst improving member security, has demonstrated that this is achievable, and we are willing and ready to play our part.”

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