The U.K.’s Pension Protection Fund on Wednesday announced it would become 110% funded in 20 years.
“We recognize that there will come a point in time when the PPF is unable to rely on surviving schemes to amortize any deficit it may have accrued,” according to documents published by the £4 billion ($6.2 billion) U.K. pension insurer. “We therefore aim to be sufficiently funded by (2030), with adequate protection against the key risks to our balance sheet.”
Specific details of how the PPF plans to accomplish this goal were not revealed, but fund officials plan “to invest in a portfolio with zero market risk (by 2030), so that any movements in liabilities are matched by corresponding movements in assets.”
“This can be achieved through a combination of financial swap agreements and low-risk investments in government bonds and cash,” according to the publication, “PPF Long-Term Funding Strategy.” In the event of “significant deviation in progress towards the funding objective,” fund officials may decide to review the funding objective itself, review the investment strategy or consider an increase or decrease of payments to the PPF.
The PPF essentially guarantees a minimum portion of pension payments from insolvent corporations using assets gathered from transferred pension funds, investment returns and premiums paid by existing corporate funds based on the risk of default for those companies. It is the premiums as a source of funding that concerns PPF officials and forms the basis for the long-term funding goal.
In a separate news release, Rash Bhabra, head of corporate consulting at Towers Watson, said: “One reason why the PPF is targeting self-sufficiency is that it knows there won’t be as many schemes around to pay levies in future. It may therefore choose to build up most of its funding reserve sooner rather than later. Today, it has announced its destination without saying how it is going to get there.”
The PPF’s funding ratio had fallen to 88% for the year ended March 31, from 91% a year earlier, according to the latest annual report.