Investment returns of more than 25% over the year to March has seen the Pension Protection Fund’s (PPF) surplus rise to more than £1bn, its annual report reveals.
At the end of March 2012, the PPF had a £1.07bn surplus over liabilities, up almost £391m from the previous year. Its membership had increased to 128,000 people, while it was managing £11.1bn of assets, a rise of £4.7bn from 2010/11.
The lifeboat fund said its strong performance was primarily due to the performance of its £6bn portfolio of swaps and repos (repurchase agreements) used to hedge inflation and interest rate risk.
Fund chairman Lady Barbara Judge, said the returns were more than sufficient to offset the PPF’s rise in liabilities in what have been turbulent financial markets.
“This is very good news for people who are worried about their pensions and a very impressive performance in this tough time and in difficult markets,” said Judge. “We have used sophisticated hedging techniques very well and we have a good track record over the last four or five years. We cannot rest on our laurels, however. Already this year, we have seen claims on the PPF of more than £700m – and a significant deterioration in the deficits of many of the other pension schemes that we protect. We are determined, however, that the PPF should remain strong enough to weather these storms.”
Although the surplus – measured using a discount rate broadly equivalent to the swaps rate less 15 basis points for terms to 11 years and gilts strip yields thereafter – rose over the year, the PPF’s own measure of its chances of reaching self-sufficiency by 2030 fell.
Chief executive Alan Rubenstein, said: “While we are still on course to meet our aims of being self-sufficient by 2030, the probability of achieving this fell during the year from 87% to 84%. Although this figure is still above our comfort level, we remain ever vigilant about events which will reduce this probability even further. Foremost in our minds has been the continuing global financial crisis and the adverse effect it has had on the funding positions of UK pension schemes.
“Increased claims on the PPF have already meant that our own funding level has fallen from 106% in March 2012 to about 102% and that levies are likely to rise in the short term.”
At the end of 2012, 293 schemes were in the PPF assessment period with assets of £5.3bn and liabilities of £7.07bn and it took on almost £2.5bn from 147 schemes transferring in.
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