UK – The new Pension Protection Fund will outsource insolvent companies’ pension assets to asset managers via an open tender process, the fund’s new chairman said.
“We will outsource asset management,” said Lawrence Churchill, who takes up his post as chairman of the PPF today. He said the fund would take over whatever assets a failed pension scheme has, though he was not yet to estimate the amount of assets that will be outsourced.
He said in an interview it would take around two to three years before the assets would be able to be outsourced, bearing in mind the time it takes to wind up schemes. The PPF board would set investment strategy.
Churchill, who was formerly Zurich Financial Services’ UK insurance chief, said the PPF has done a lot of mathematical modelling with the Government Actuaries Department to test “certain scenarios” about the size of the levy to companies. He explained that, unlike the US Pension Benefit Guaranty Corp., the PPF’s levy would be based on risk.
This would take into account the level of underfunding a scheme has, he said and use it as a basis for assessing the risk of insolvency. He hoped the level of the levy would be “proportionate”. The fund, he added, would work with ratings agencies on assessing insolvency risk.
He refuted claims that the levy represents another nail in the coffin of defined benefit schemes. “I don’t think that at all. I think this could be something of a power pushing it in the opposite direction. In a way it could solidify the DB promise.”
And he played down fears that the existence of a ‘safety net’ would lead to pension funds taking more risks. “I don’t think it’s likely to happen,” he said. He pointed out that trustees will still have to fulfil their duties. And he added that the new pension regulator will be taking a more risk-based approach than the current Occupational Pensions Regulatory Authority.
He said the PPF has learnt the lessons from the US PBGC. “We have been able to learn from their experience.” The design of the PFF, with its focus on risk, was significantly different from the US body.
The PPF will have up to 150 staff and will likely be based in Brighton, enabling it to work “cheek by jowl” with the regulator, which will also be based in the South coast town.