• Home
  • Admin/Tech
  • Benefits
  • Buzz
  • DB
  • DC
  • Diversity
  • Investment
  • Law & regulation
  • Risk reduction
  • Events
  • Whitepapers
  • Spotlights
  • Digital Edition
  • PPTV
  • Newsletters
  • Sign in
  •  
      • Newsletters
      • Account details
      • Contact support
      • Sign out
     
    •  

      You are currently accessing ProfessionalPensions via your Enterprise account.

      If you already have an account please use the link below to sign in.

      If you have any problems with your access or would like to request an individual access account please contact our customer service team.

      Phone: +44 (0) 1858 438800

      Email: [email protected]

      • Sign in
  • Follow us
    • Twitter
    • LinkedIn
    • Newsletters
    • YouTube
  • Register
  • Subscribe
  • Events
    • Upcoming events
      event logo
      Defined Benefit Consolidation Conference

      Professional Pensions is hosting this concise digital event on the 25th March to provide a crucial update on where the current regulation stands on DB Consolidators, assess the different models available, what the expected funding levels are and the governance requirements. This event will be a combination of short presentations followed by live Q&A’s with our expert speakers allowing plenty of time to answer your questions.

      • Date: 25 Mar 2021
      • Digital Conference
      event logo
      Defined Contribution Conference

      Professional Pensions Defined Contribution virtual event, hopes to take stock of the last year, and ask the important questions; are members saving enough and have we improved the member journey at retirement? This two part digital event will provide you with the latest thinking and innovation in the DC market during our snappy 15 minute presentations, with plenty of time to ask questions during our live speaker Q&A.

      • Date: 20 Apr 2021
      • Virtual Conference, Virtual Conference
      event logo
      Sustainable Investment Festival 2021

      The Sustainable Investment Festival will run online from 22-25 June and will include thought-provoking presentations from renowned keynote speakers, innovative breakout events and sessions specifically tailored to meet the information needs of fund selectors, financial advisers, pension consultants, trustees and scheme managers.

      • Date: 22 Jun 2021
      • Online, Online
      event logo
      UK Pensions Awards 2021

      The UK Pensions Awards – now in their 24th year – remain the industry's most prestigious accolades. They shine the light on excellence and recognise the advisers, providers and investment managers that offer the highest level of innovation, performance and service to occupational pension schemes and their members, and have done the most to improve this over the past year.

      • Date: 14 Sep 2021
      • London
      View all events
      Follow our Professional Pension Events

      Sign up to receive email alerts about our events

      Sign up

  • Whitepapers
    • How DC schemes can gain exposure to different asset classes in a low-return environment

      So far, DC plans have largely been focused on the onset of auto-enrolment and changes to the regulatory framework - be it the ‘charge cap,' ‘pension freedoms' or consultations around ‘value for money', says Annabel Tonry, Executive Director at J.P. Morgan Asset Management (JPMAM).

      Download
      Pension freedoms three years on

      In 2015 George Osborne, then the UK Chancellor of the Exchequer, decided that those age over 55 could take much more of their pension in cash. This has since opened up a range of possibilities for DC scheme members in the world of pensions.

      Download
      Find whitepapers
      Search by title or subject area
      View all whitepapers
  • Spotlights
  • Digital Edition
Professional Pensions
Professional Pensions
Sponsored by T. Rowe Price
  • Home
  • Admin/Tech
  • Benefits
  • Buzz
  • DB
  • DC
  • Diversity
  • Investment
  • Law & regulation
  • Risk reduction
 
    • Newsletters
    • Account details
    • Contact support
    • Sign out
 
  •  

    You are currently accessing ProfessionalPensions via your Enterprise account.

    If you already have an account please use the link below to sign in.

    If you have any problems with your access or would like to request an individual access account please contact our customer service team.

    Phone: +44 (0) 1858 438800

    Email: [email protected]

    • Sign in
  • Risk Reduction

Is the PPF ready to hedge longevity risk?

The Pension Protection Fund is £3.6bn in surplus so is there potential for the lifeboat fund to begin insuring its liabilities? Natasha Browne investigates

  • Natasha Browne
  • 31 July 2015
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Send to  
0 Comments

The Pension Protection Fund is £3.6bn in surplus so is there potential for the lifeboat fund to begin insuring its liabilities? Natasha Browne investigates

At a glance
  • The PPF posted a surplus of £3.6bn at the end of March 
  • Experts say it could look to de-risk its assets over time 
  • The fund admits it is operating in an "uncertain" world

 

 

Related articles

  • Woodford investors to receive third payment on 26 August as annual reports delayed again
  • How multi-national companies are providing pensions for mobile workforces
  • Mineworkers and British Coal schemes succeed in a rare US securities fraud class action case
  • Have investment managers improved their ESG approaches?

 

 

The Pension Protection Fund (PPF) reached an impressive funding level of 115% at the end of March this year. Its 2014/15 annual reports and accounts - published on 20 July - showed its surplus was £3.6bn.

The lifeboat fund now owns and manages assets of £22.6bn. Over the past ten years, it has collected levies worth £5.3bn; transferred in assets of £8.7bn from schemes in deficit; and recovered £1.9bn from insolvent scheme sponsors.

But despite its progress since its inception in 2005, the fund has actually cut expectations that it will reach self-sufficiency by 2030 from 90% last year to 88% this year. Part of the reason for this has been the significant surge in deficits across the defined benefit (DB) schemes in its universe.

In January, the total deficit of schemes in the PPF 7800 Index was a record high of £367.5bn on an s179 basis. Since then however, there has been a consistent reduction in deficits. The figure recovered to £223.1bn in June.

This demonstrates the ever-shifting environment in which the fund has to manage its liabilities. Chief financial officer Andy McKinnon says the fund is operating in "an outside world that continues to be uncertain".

As such, it is only logical to ask whether the PPF should consider insuring its liabilities; how it could achieve this; and if there were any reasons why it should not.

JLT director Martyn Phillips points out the PPF already hedges its investment risks; interest rates and inflation. That leaves longevity as the big unknown. As such, the PPF could consider a longevity swap as a way to manage the risk or look to do transactions on either the buy-in or buyout market for even more robust protection.

Although Phillips agrees that a buy-in could be a viable de-risking tool for the PPF, he is against the idea of the government-backed fund entering a buyout. Phillips says: "I suppose it goes back to the principle of why the PPF is there.

"It's a backstop and the scheme of last resort so for the PPF to pass on responsibility for pension scheme members that have had to rely on it to provide their benefits, I think would be very challenging.

"A buyout would be nigh on impossible from a principle's perspective. But a buy-in or a longevity swap are really to my mind just de-risking tools. The PPF has a stated self-sufficiency objective and it also adopts quite a low risk approach to how it invests to back its liabilities.

"One could argue that it may at some point in the future look to undertake a buy-in or a longevity swap to lock down and protect part of the risk it's holding today to get it closer towards the self-sufficiency goal."

LCP partner Charlie Finch agrees that a buy-in is a potential way forward for the lifeboat fund. But he is against the idea that moving the liabilities onto an insurer goes against the funds' principles. After all, plenty of other government-backed organisations outsource their responsibilities to the private sector.

Finch says the key consideration for the PPF is whether a buy-in offered good value. Transaction costs are more favourable where the money has been invested on a low-risk basis too.

The fund would need to split its liabilities into blocks and decide which parts were better managed in-house and which would be better off under the control of an insurer, according to Finch.

He adds: "In my view the PPF should certainly consider longevity hedging or buy-in options as a way of managing the risk and making sure it delivers value for levy payers. There's no ethical reason why it shouldn't be outsourcing these things to the private sector."

According to the PPF long-term funding strategy update - published on 27 July - its statement of investment principles has been updated to allow investment in long-term illiquid assets with hedging properties. The fund has already begun the transition to this strategy. Overall portfolio allocation to illiquids has risen to 12.5%.

Hans den Boer (pictured) was named chief risk officer in February. The appointment reflected the growing importance the lifeboat fund places on implementation of best practice as it expands. Den Boer does not rule out some sort of insurance based de-risking in the future.

He tells PP: "There are some risks which will remain beyond 2030 and which we will need to hold reserves against, such as unexpected claims, CPI/RPI mismatch and operational risk.

"The largest risk which at present we need to target holding a reserve against is members living longer than expected.

"If we believed the costs of transferring longevity risk provided value for money, and the additional risks associated with the transaction (for example counterparty risk) were within our risk appetite, we would derisk. We do keep under review whether we could do this but wouldn't currently do so."

  • Tweet  
  • Facebook  
  • LinkedIn  
  • Send to  
  • Topics
  • Risk Reduction
  • PPF
  • buyout
  • Longevity swaps
  • JLT
  • LCP

More on Risk Reduction

2020 data has been ignored in the core model
CMI finds modest fall in cohort life expectancy after zero-weighting Covid data

The Continuous Mortality Investigation (CMI) has found a lower cohort life expectancy for both men and women in its 2020 table, even after zero-weighting data related to Covid.

  • Risk Reduction
  • 04 March 2021
The newspaper publisher agreed to fully fund the scheme to complete the deal. Image: Steve Buissinne from Pixabay
Rothesay agrees £120m buy-in with Reach

Rothesay has concluded a £120m buy-in with the West Ferry Printers Pension Scheme, covering all remaining pensioner and deferred liabilities.

  • Risk Reduction
  • 01 March 2021
MetLife reinsures $5bn of Rothesay liabilities

The Metropolitan Tower Life Insurance Company (MetLife) has reinsured approximately $5bn (£3.6bn) of Rothesay pension liabilities.

  • Risk Reduction
  • 26 February 2021
It is more important than ever for smaller schemes to carry out the necessary preparation work
Industry Voice: The bulk annuity market for small schemes

Although 2020 was a challenging year, Aon's Dave Barratt says the bulk annuity market was very resilient, with a well-functioning insurance market, large volumes of business written and 2020 finishing up as the second busiest year on record.

  • Risk Reduction
  • 25 February 2021
Long-term Covid uncertainty makes longevity hedging more valuable

The uncertainty surrounding the potential impact of so-called long Covid and behavioural changes heightens the need for schemes to increase their longevity hedging, says Prudential Financial.

  • Risk Reduction
  • 25 February 2021
blog comments powered by Disqus
Back to Top

Most read

Spring Budget 2021: Lifetime allowance freeze, flat rate of tax relief and AE review among expectations
Spring Budget 2021: Lifetime allowance freeze, flat rate of tax relief and AE review among expectations
Spring Budget 2021: Lifetime allowance frozen until 2026
Spring Budget 2021: Lifetime allowance frozen until 2026
KPMG employer covenant team acquired by private equity firm H.I.G Europe
KPMG employer covenant team acquired by private equity firm H.I.G Europe
DB funding - February 2021: Gilts-plus deficit eliminated, says PwC
DB funding - February 2021: Gilts-plus deficit eliminated, says PwC
Spring Budget 2021: Government to consult again on DC investments and charge cap barriers
Spring Budget 2021: Government to consult again on DC investments and charge cap barriers
Trustpilot

 

  • Contact Us
  • Marketing solutions
  • About Incisive Media
  • Terms and conditions
  • Policies
  • Careers
  • Twitter
  • LinkedIn
  • Newsletters
  • YouTube

© Incisive Business Media (IP) Limited, Published by Incisive Business Media Limited, New London House, 172 Drury Lane, London WC2B 5QR, registered in England and Wales with company registration numbers 09177174 & 09178013

Digital publisher of the year
Digital publisher of the year 2010, 2013, 2016 & 2017
Loading