The UK’s lifeboat fund for defined benefit (DB) schemes grew its reserves and improved its funding level despite a year of high-profile corporate bankruptcies.

The Pension Protection Fund (PPF) reported a £6.7bn (€7.6bn) surplus for the 12 months to 31 March 2018 in its latest annual report, published today.

This marked an increase of nearly 10% on the previous year, despite the fund having to pick up £1.2bn of funding shortfalls from the schemes of bankrupt companies including Carillion and Toys R Us – the biggest hit in a single year since the PPF was established in 2005.

More than 65,000 people started receiving benefits from the PPF during the period, including those transferring to the fund as part of the restructuring of the British Steel Pension Scheme.

The PPF’s investment portfolio outperformed its liabilities by 3.2%, the annual report stated, bringing its funding ratio to 122.8% – also an improvement year-on-year.

Over three years the fund has returned 2.7% annualised, beating its rolling target of 1.8% above Libor.

The funding ratio was also aided by “favourable mortality and expense assumption and data changes”, the PPF said.

Oliver Morley, CEO, PPF

PPF chief executive Oliver Morley

Andy McKinnon, chief financial officer, said: “Our success over the past year has come amid a backdrop of political, regulatory and economic uncertainty, so I am pleased to report that we have achieved such strong financial results.

“However, there are significant risks in the pensions universe we protect. We continue to monitor these risks to ensure we can meet the needs of our members and our levy payers, and our performance over the past year reflects this.”  

Oliver Morley, who took over as chief executive in March following the departure of Alan Rubenstein last year, added: “While we remain strong, we are not complacent. We remain focused on becoming more efficient and effective for our members and levy payers.”

Investment portfolio

The PPF’s return-seeking portfolio gained 2.8% overall in the 2017-18 period despite an uptick in asset volatility in recent months.

The fund’s listed equity exposure performed strongest, gaining 11.2%.

Its alternative assets also made “significant contributions to performance”, the report said, citing in particular private equity, infrastructure and property.

During the year, the PPF cut its exposure to index-linked government bonds dramatically, from 7.3% of the portfolio at the end of March 2017 to 1.4% a year later.

In total the fund sold nearly £4bn worth of government bonds during the year, both regular and index-linked, although more than 46% of the portfolio remained invested in UK government debt.

The proceeds were primarily reinvested into corporate fixed income, the PPF’s accounts suggested – the allocation grew from 9.5% to 14.2% year-on-year.

The investment team, led by CIO Barry Kenneth, recently moved from the PPF’s headquarters in Croydon in south London to a central London office in an effort to be closer to the fund’s investment managers and improve its chances of attracting and retaining staff.

The PPF said it was continuing to grow its in-house capabilities, including bringing onboard part of its credit portfolio in the 2018-19 financial year.

“We may also look to insource other asset classes in the future when we have the necessary resource and expertise in place to do so,” the fund stated.

PPF asset allocation

Source: Pension Protection Fund

Funding target

The PPF currently charges eligible UK DB schemes an annual levy to help fund its operations. In the 2017-18 financial year it raised £537m.

Longer-term, however, the fund aims to become self-sufficient by 2030. According to the fund’s own estimates, it has a 91% chance of meeting this objective – although this was slightly lower than last year.

The PPF said it had added in several more measures to calculate the likelihood of hitting this target.

Despite the slight decline year-on-year, the fund said: “We remain ahead of the target we have set ourselves at this point on our journey to our funding horizon.”

Key figures


The PPF’s assets under management as of 31 March 2018


The lifeboat fund’s surplus


Pensioners and deferred members receiving or due to receive PPF compensation


Schemes entered the PPF in 2017-18

Carillion vans

12 schemes sponsored by collapsed services firm Carillion entered the assessment period in Q1 2018


Schemes entered the PPF’s assessment period in 2017-18


Combined deficit of the schemes in the PPF’s assessment period


Income from recoveries and restructuring, including cash for the Nortel Networks UK scheme