The gradual economic recovery is welcome news for the Pension Protection Fund, with buoyant equity markets and stronger companies outweighing some losses in its liability-driven investment strategy.
The organisation's annual report released today showed an increase in the likelihood of the pensions lifeboat of being self-sufficient by 2030 to 90 per cent in the year to March 31 2014, from 87 per cent in 2013.
PPF chair Lady Barbara Judge and CEO Alan Rubenstein said the increase in funding level was due to a “new” low level of claims and fewer companies becoming insolvent.
Judge said the self-sufficiency metric was slightly higher than target. “One of the reasons is because there have been less bankruptcies this year, and pension funds are better funded,” she said, adding: “The pensions lifeboat continues to sail smoothly on towards its goal.”
There was also an increase in funding level to 112.5 per cent from 109.6 per cent. “This shows the investment strategy is working… we were up 2.9 per cent above our benchmark,” said Judge. “Also, the economy is doing better.”
The organisation's annual report released today showed an increase in the likelihood of the pensions lifeboat of being self-sufficient by 2030 to 90 per cent in the year to March 31 2014, from 87 per cent in 2013.
PPF chair Lady Barbara Judge and CEO Alan Rubenstein said the increase in funding level was due to a “new” low level of claims and fewer companies becoming insolvent.
Judge said the self-sufficiency metric was slightly higher than target. “One of the reasons is because there have been less bankruptcies this year, and pension funds are better funded,” she said, adding: “The pensions lifeboat continues to sail smoothly on towards its goal.”
Investment strategy
There was also an increase in funding level to 112.5 per cent from 109.6 per cent. “This shows the investment strategy is working… we were up 2.9 per cent above our benchmark,” said Judge. “Also, the economy is doing better.”
The fund currently has £16bn in assets under management, up from £14bn last year. But the scheme’s investment return was -0.7 per cent compared with 11.1 per cent in 2013, due to losses in its LDI portfolio.
Rubenstein said: “The net investment returns on the LDI were minus £0.55bn but the revaluation of claims contributed £0.8bn. So that is our hedging programme if you put those two together.”
The report stated: “The LDI hedging programme is designed to offset the liabilities as a result of interest rate and inflation movements. The combination of interest rates and inflation rates during the year resulted in a reduction in liabilities.”
Excluding the LDI programme, the total asset return was 3.4 per cent, this was due to the global equity portfolio which delivered outperformance of 19.5 per cent. The alternative credit and property portfolio also outperformed.
Rubenstein said the scheme will allow the new statement of investment principles, released at the beginning of the month. to “bed in” before any changes to the investment strategy are made.
Levy calculations
The organisation raised £577m of levies in the year, down from £644m in the previous time frame. The organisation is also in the midst of a consultation on the changes to the levy, which would give employers more clarity on the “various factors” that affect the charge.
“It will be September before we finalise where we are with the levy,” said Judge.
Some 827 contingent assets were certified which resulted in a total levy reduction of £138m. After releasing guidance to levy-payers, the PPF tested a sample for guarantor strength, but “there was a significant failure” among those tested.
“Overall, about half of the Type A contingent assets [those with parent company guarantees] tested were rejected,” the annual report stated.
