UK - Amid claims its risk-based levy will kill UK defined benefit (DB) pension schemes, the Pension Protection Fund (PPF) today confirmed it would not consider investment strategy as a separate risk factor.
PPF chief executive, Partha Dasgupta, made the announcement in a speech to the NAPF Annual Conference in Manchester.
Earlier, a senior member of a leading consulting firm told Global Pensions, on the condition of anonymity, that the levy could increase at any time.
He explained: "It's too much of a burden and a risk on companies and there is no evidence that it will not just get worse. I have seen with some of our clients, that it can just compound the problem, the more risk they are seen to have, the more it costs and so the viscious circle continues.”
The member concluded: “The knock-on effect for UK business is that companies may now focus their efforts on just on funding pension schemes and forget why they started up in the first place.”
Commenting on the PPF's move, Dasgupta said: “We took the decision as it is too early to introduce something this complex at this stage and it may be too costly for smaller schemes. We will be watching the products the industry is beginning to introduce and consult with them for more information.”
Dasgupta continued: “We do take investment risk into account when looking at total aggregated risk, but for individual cases, it’s just too soon.”
Asked about the PPF's decision, Paul McGlone, principal and actuary from Aon Consulting said: "I think it's a very good idea for two reasons. Firstly, it would be far to difficult to measure as pension funds are not just investing in simple equities and bonds any more. Hedge funds for example are all different, alternatives and the wide spectrum of asset classes cannot be easily compared in terms of risk management."
The PPF’s industry consultation held earlier in the year found 60% of respondents were currently against the introduction of investment risk as a risk factor.
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