Industry doubts security, cost, capability of PPF

Trustees have raised questions over funding and political support for the Pension Protection Fund (PPF).

An unpublished survey by insurer Pension Corporation, seen by PW, shows 50% of trustees do not trust the body to secure benefits for scheme members, with a further 15% say they are “not sure” how secure the body is.

The ability of the PPF – which is funded entirely by industry levies – to absorb a scheme with a large deficit such as British Airways or Royal Mail is in doubt, while there is little political appetite to fund it with public money.

The research showed these schemes view buyout as a safer means of securing assets to PPF inclusion, but remained concerned about the cost of the derisking measure, with 65% of respondents calling it the “biggest barrier”.

In particular, 34% are considering longevity insurance, 57% liability driven investment and 45% looking at either pension insurance buyout or buy-in.

Buy-ins were preferred to full buyouts by a factor of around 75% to 10%, with the remainder preferring not to take up the option at all.

Pensions Corporation asset liability chief David Collinson said: “The study demonstrated the fall of Lehman Brothers had a marked impact on the risk tolerance of pension fund trustees.

“However, the study showed pension insurance buy-in policies continue to be one of the most popular forms of risk transfer, perhaps because these can be arranged at marginal cost above technical provisions.”