Current issues for the Pension Protection Fund Occupational Pensioners’ Alliance – 18 February 2010 Paul Reynolds – Director of Corporate Affairs
Current key themes for the PPF • What does the PPF mean for scheme members? • PPF resilience in the downturn • The challenge of scheme data
What does the PPF mean for scheme members? Overview of what we do The Pension Protection Fund was established to pay compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation. � Also manage the FAS and FCF
What does the PPF mean for scheme members? Gwendolen Holloway • Gwendolen is 88 years old and lives in Hove, East Sussex • She work for Garrard for 14 years until she retied at the age of 65 • Her pension scheme, the Asprey Group Pension Scheme, had 1,163 members and transferred to the PPF in August 2008 “Keep faith with the PPF is my advice to anybody who is lucky • She visited the PPF in January enough to be taken 2009 for our first Member Day under their wing”
What does the PPF mean for scheme members? Current key statistics • Over 12 million scheme members, in c.7,400 schemes, protected • 188 cases with over 34,000 members have completed assessment • 357 cases with just over 200,000 members in the assessment period • 100,000 receiving PPF benefits (either from PPF or trustees)
PPF Resilience in the downturn Financial Highlights • Deficit as at 31 March 2009 £1.23bn (88% funding ratio) – Includes schemes in assessment at that date • PPF’s defensive investment approach yielded a return of 13.4% (including hedge) • Estimated deficit has moved since 31 March 2009 – Investment returns – Changes in liabilities – Impact of new claims
Movement in the PPF Deficit during 2008/ 09 Movement in PPF deficit from 31 March 2008 to 31 March 2009 e c t o f Other E f f change in Levy income Investment changes to Deficit at 31 New claims assumptions accrued in gains on PPF assets and Deficit at 31 March 2008 2008/ 09 on liabilities 08/ 09 assets liabilities March 2009 0 0 -500 -500 -517 -1000 -1000 257 -486 -1500 -1500 -1230 646 -2000 -2000 173 -1303 -2500 -2500 -3000 -3000 -3500 -3500 -4000 -4000
PPF Claims Characteristics Num ber of schem es or segregated parts having entered an assessm ent period Count of insolvency Insolvency events post 70 events over quarter 31 March 2009 60 Insolvency events prior to 31 March2009 in 50 surplus at assessment 40 date Insolvency events prior 30 to 31 March2009 in 20 deficit at assessment date 10 0 5 6 6 7 7 8 8 9 9 5 5 6 6 7 7 8 8 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 n r n r n r n r n p c a p c a p c a p c a p c u u u u u e e e e e e e e e e M M M M J S D J S D J S J S D J S D D - - - - - - - - - - - - - - - - r - r - r - r n r n n n p l t p l t p l t p l t p l t u c a u c a u u c a u c A A A c a A A J O J O J J O J O J J O J J Financial quarter
PPF Resilience in the downturn Modelling financial futures • PPF confident of long term ability to pay compensation • Context of the funding ratio 2005/ 06 2006/ 07 2007/ 08 2008/ 09 Assets £2,086m £4,409m £5,554m £9,330m Liabilities £2,429m £5,018m £6,071m £10,560m Funding Ratio 86% 88% 91% 88% • Continuing development of the PPF’s Long Term Risk Model
Recovery Profiles of the PPF £20.0bn £15.0bn £10.0bn £5.0bn £0.0bn 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 -£5.0bn -£10.0bn 75th percentile of base Median of base 25th percentile of base 75th percentile of double-dip Median of double-dip 25th percentile of double-dip
The challenge of scheme data Background • Poor scheme data significant challenge for the PPF (and FAS) • Data about member records, scheme records and scheme rules • Delays to the Assessment Process create uncertainty for scheme members and costs to levy payers • Most ongoing schemes only consider data when a member retires; often not a priority
Why are schemes taking more than 2 years to complete the assessment period? • Overarching theme of data quality • Key reasons are: – Legal issues – Member data issues – Repeated s143 valuations required – Non-performing trustees or administrators • Average of 9 iterations over 8 months to complete data interface for transferring schemes
Progress of schemes through assessment 100% % of year's intake still in assessment 90% % of year's cases completed in 3-4 years 80% % of year's cases completed in 2-3 years % of year's cases completed in 2 years 70% 60% 50% 40% 30% 20% 10% 0% Target 2005/ 2006 2009/ 2010 2007/ 2008 2008/ 2009 2006/ 2007
The challenge of scheme data Responses • Industry wide issue – Only 19% of schemes have checked they have all fundamental common data for scheme members – Reports of 5% premium on buyout for poor data – Ombudsman has voiced concerns about data cases he sees • Regulator consultation launched on 2 February • Sets out standards for member records and steps for schemes that fall short ‘Trustees and those responsible for administering workplace pensions will need to improve standards of record keeping.’
Current issues for the Pension Protection Fund Occupational Pensioners’ Alliance – 18 February 2010 Paul Reynolds – Director of Corporate Affairs
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