UK - A key architect behind the government's Pensions Protection Fund has admitted its design is flawed and that it will be another burden on schemes.
A senior official at the Government Actuary’s Department says he understands the political pressures behind the PPF but feels the final outcome is “disappointing”.
GAD played a key role in the PPF’s creation and its staff formed part of the government’s policy team sent on a fact-finding mission to the US last year to look at how its protection fund operates.
The PPF will be introduced in 2005 and will charge schemes a flat-rate levy in its first year.
But GAD directing actuary, occupational pension schemes, Grant Ballantine believes the PPF should be charging a combined flat and risk-rate levy and pay out a lower level of benefits.
He said: “The PPF seems flawed, and it is unhelpful in the way it is another cost on schemes. You can see the political pressure has resulted in it being where it is – but it is a bit disappointing.”
He added: “The PPF will not provide full protection of benefits. It will pay a pension increase of 2.5% from April 1997 but nothing before that. And of course, the deferreds will only get 90% cover, so it is not as burdensome as full protection.”
Ballantine’s views follow concerns raised by the Actuarial Profession which believes the PPF is exposed to the “same risks of failure” as schemes.
In a letter to work and pensions secretary Andrew Smith the Actuarial Profession said the PPF was vital to rebuilding confidence in occupational provision. But, it said, to do that, the PPF must be set up and operated with clear objectives.
If the PPF’s mission is to honour pension promises, the Actuarial Profession says it should be run along the same lines as an insurance company – subject to full supervision and solvency regulations.
Otherwise, members must be informed that their benefits are not fully guaranteed.
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