The Pension Protection Fund (PPF) has seen its funding ratio improve over the last financial year, despite a marked slump in investment performance following 2015’s record return of nearly 26%.

The UK’s lifeboat scheme said its funding ratio had risen by more than 1 percentage point, to 116.3%, despite the impact of the schemes for insolvent retailer BHS entering the PPF, and investments only returning 1.7%.

CIO Barry Kenneth said the £23.4bn (€29.7bn) fund had intentionally taken on less risk over the course of the year but nevertheless managed to outperform liabilities.

It generated £200m in income from both its liability driven investment (LDI) portfolio and its growth portfolio, with the fund’s surplus increasing by around £500m to £4.1bn at the end of March.

Kenneth also confirmed the fund hoped to move to in-house the management of parts of its LDI portfolio by the end of the year.

But, despite the change in approach, he signalled the fund would not rapidly switch to in-house management for other parts of its portfolio.

“This is a long-term plan, focused on managing funds in a considered and sustainable way,” he said.

“We will take the time we need to make this work for the long-term interests of our members.”

Andy McKinnon, the fund’s CFO, echoed Kenneth’s upbeat tone and said 2015-16 had been successful despite the “challenging economic backdrop”.

“Our robust strategy has put us in a strong position to manage the uncertainties ahead, and our long-term risk model predicts we will achieve financial self-sufficiency by 2030 in 93% of scenarios,” he said.

The PPF’s likelihood of achieving its self-sufficiency target by 2030 – at which point it would no longer be reliant on levy income – has significantly increased since 2014-15, but the fund’s CRO Hans den Boer admitted the 5-percentage-point improvement over the previous year was down to changes to the way the self-sufficiency target was calculated rather than changes in the market environment.

In addition to already paying compensation to members of BHS schemes, the fund also acknowledged the potential impact of a second potential insolvency event – the entry of the British Steel Pension Scheme (BSPS) into the PPF.

The PPF said an allowance had been made for the potential future claim by the BSPS, and that, based on information it had to hand, it would possess “sufficient reserves should this scheme come to [the PPF] during the coming year”.

The future of BSPS is being debated by government.

The PPF has argued that, if the fund is allowed to sever the link to its sponsor, it should be barred from entering the lifeboat fund in future

Taking into account expected insolvency events, also known as type II liabilities, the PPF’s board calculated that its funding level would have declined from 115% to 108% over the course of the financial year.

McKinnon confirmed the 108% funding ratio reflected BSPS’ potential entry into the fund.