The Future of the PPF

With so much talk in the pensions press about surpluses, Punter Southall ask, is there still a need for the lifeboat fund set up to protect the members of insolvent schemes?

When the PPF was created, more than two decades ago, the financial health of DB pension schemes was very different to the picture we see today. The PPF reported that as at 30 March 2007, nearly two-thirds (64%) of schemes were in deficit on a section 179 basis, and the aggregate deficit on a buy-out basis stood at £400 billion. Schemes (still) held 60% of their assets in equities.

The need for a safety net was clear, and the PPF has been hugely successful at providing it, ensuring that members of failed schemes are spared the most serious financial hardship thanks to the compensation it pays.

The PPF’s latest accounts for the year to 31 March 2025 reported that it had 289,469 members. The reserves it was holding to pay those members totalled £17.0 billion, but it was managing assets of £31.2 billion, far more than it ever expects to need to meet not only its current obligations, but any future claims upon it too.

It has accrued that vast surplus by raising levies upon solvent schemes each year and by investing the assets of the failed schemes it takes on, along with any recoveries it makes from their insolvent sponsors. Each year, the PPF sets a method for calculating the levy and an estimate of the sum it will raise, at least 80% of which must be risk-based. Since its first levy estimate for the year to 31 March 2007, it has aimed to raise a total of £10.6 billion.

With hindsight, it seems that the PPF has dramatically over collected. The 2024 Purple Book reported an aggregate surplus in DB schemes of £219.2 billion as at 31 March 2024, that the average buy-out funding level stood at 94.4% and that schemes held just 15% in equities. With much of the risk in the system gone, the huge surplus appears to be here to stay.

However, the averages mask the wide variation that exists and the fact that a significant number of schemes may still need to call upon the PPF in the future. So, a safety net is still required, but the PPF probably won’t ever run out of money or need to collect more.

Questions have already arisen about how the PPF might spend its surplus. It could increase the compensation levels it pays to members or perhaps return monies to levy payers. However, neither seem likely for one very good reason - the PPF has the power to do neither and the Government is unlikely to change the law. The surplus in the PPF is reported in the Whole of Government Accounts, so spending it would have a detrimental impact on already strained public finances.

Which means for levy payers, the best that can be hoped for is an end to the levy (which is expected to be possible once the Pension Schemes Bill becomes law) and for members, it would be a big surprise if they got higher compensation than the current rules provide for.

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We hope you've found this article of interest.

If you'd like to discuss it, or any other matters where we may be able to assist you, please contact Chris Parlour on Chris.Parlour@puntersouthall.com