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S&P sees up to €2bn annual claim on UK’s PPF

UK – Rating agency Standard & Poor’s says the annual claim on the UK’s new Pension Protection Fund could be as high as £1.57bn (€2.29bn) in the worst-case scenario.

S&P said this figure would occur if there were poor corporate defaults and a realistic 20% level of recovery of deficit from defaulted sponsors.

It said: “If the worst five year period since 1981 for corporate defaults was repeated, the annual call on the PPF would be between £940m (assuming a 40% recovery rate) and £1.57bn (at a 20% recovery rate).” This would swamp the PPF's annual levy of £300m.

"While the PPF is not required to be solvent in the sense of an insurance company, there must be a limit to the losses it can shoulder without additional funding," said Jim MacLachlan, S&P’s director of European pension services.

"The experience of the Pension Benefit Guaranty Corp. in the US has shown the speed and extent with which funds can be hit."

“Default trends among UK companies suggest that the UK Pension Protection Fund could rapidly exhaust its resources in meeting claims from company pension schemes.”

Elsewhere, the Association of Consulting Actuaries has surveyed 392 UK companies and found that 68% of them say current pension policies “are not moving in the right direction”.

It found that 62% said the new Pensions Act would in fact reduce occupational pension provision.

ACA chairman Adrian Waddingham said: “Something must be amiss when, having just passed a major Pensions Act after long and involved consultations, the government – within weeks – is hinting a Pensions Bill will be a high priority in the next parliament.”

The ACA has unveiled a ‘Pensions Manifesto’ ahead of the election on May 5.

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