UK - The Pensions Protection Fund will be doomed from the outset without government backing, PMI delegates were warned.
Hewitt Bacon & Woodrow principal consultant Raj Mody says the PPF risked collapse within the first three years unless there was a government u-turn on its decision not to underwrite the insurance fund.
Mody said: “With underfunding from the outset, a potential rash of claims and schemes clinging on until the PPF is established, the fund will do well to limp through to its third year. In the first year the PPF will get half the right levy but more than double the usual claims.”
He added: “It is a political decision to go ahead with this form of protection but if we are going to do it, let’s do it properly. The risk-based element should form a larger part of the overall levy, much more than the targeted 50% – somewhere around 90% would be more realistic.
“A sound approach to a risk-based levy could encourage stronger employers to ramp up the funding of their schemes – as some US companies have – and reduce their levy and bring extra security for members.”
Mody claims government backing for the PPF at a core level was imperative for success. He called for underfunding of member benefits up to the £25,000 cap.
Statements of funding principles was seen as the government’s “best idea of the past four years” and Mody called on trustees to embrace the initiative.
He said: “Without a document outlining how and why a scheme is going about its funding, there will always be an element of confusion. A live and evolving statement means decisions can be made within a framework consistent with the funding approach.”
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