PPF reserves take COVID-19 hit

The reserves held by the Pension Protection Fund to pay future claims fell by 16.4% to £5.1 billion ($6.3 billion) in its latest fiscal year, as the coronavirus hit its return-seeking assets.

The PPF said in its annual reports for the year ended March 31, published Thursday, that the drop in reserves "is a reminder that we cannot be complacent," with many of the pension funds it protects underfunded and with potentially worsened positions due to the pandemic. The PPF is the lifeboat fund for the defined benefit plans of insolvent U.K. companies.

Despite the market turbulence caused by the COVID-19 pandemic in the final quarter of its fiscal year, its investments returned 5.2% — the same return as in the previous fiscal year. Assets grew 12.5% to £36.1 billion but liabilities increased 24.2% to £28.7 billion.

The PPF's funding ratio fell to 113.4% from 118.6% a year previous.

"At the end of the third quarter our assets, reserves and funding ratio were significantly higher than at 31 March 2019, only declining as the coronavirus pandemic affected global markets," the report said.

PPF executives monitor the fund's progress toward its funding target using its "position of strength" metric, which it estimates on a quarterly basis. As of March 31, this figure was 83%, down from 89% at the start of the fiscal year.

Over the fiscal year, the PPF completed its investment insourcing project, bringing the management of its foreign-exchange portfolio in-house and insourcing part of its buy-and-hold U.K. credit allocation.

"We now manage the majority of our assets in-house, which gives us complete control over the portfolio," the report said. "We can react quickly and efficiently to market movements while adhering to strict governance standards." The fund continues to use external managers "where there is no clear benefit to doing the work ourselves."