The chief executive of the UK’s Pension Protection Fund (PPF) has warned the industry not to expect a levy holiday despite the possibility of a surplus developing within the lifeboat scheme.

Alan Rubenstein told delegates at the National Association of Pension Funds (NAPF) annual conference in Manchester that it was “far too soon to start declaring victory” despite the odds being in favour of the 106% funded PPF meeting its funding – and self-sufficiency – target.

He said that while its modelling on occasion predicted it could be 140% or 150% funded in the mid-2020s, this did not necessarily translate to its reaching the 110% target in 2030.

“You have to accept from this that we are not yet in that happy position where we’ve got to think about a surplus,” Rubenstein said.

“We will, in any event, manage that surplus as we go. But, realistically, let’s be clear about it – the levy is here to stay. If anybody thinks there is a levy holiday coming, I’m sorry – not now.”

Talking about the financial situation facing the UK defined benefit universe, he noted its health was slowly improving, which could – if sustained – eventually “feed through” to the levy payments.

However, again addressing the potential of a surplus, Rubenstein said: “It is far too soon to start declaring victory and starting to dole out the surplus.”

Rubenstein also outlined how the fund would be altering its investment strategy in future, decreasing its reliance on hedging – despite the approach in 2011-12 helping it return 25%.

He explained that, at present, the PPF’s inflation and interest rate risks were hedged, while it also invested in growth assets – an approach he viewed as “quite sophisticated” by UK standards.

“But we want to go a step beyond that,” he added, noting that the investment team hoped to shift to a model whereby the characteristics of assets would act as the hedge.

“So, our explicit inflation and interest rate hedges would shrink, and we will use the characteristics of our assets – such as infrastructure, for example – to help us build that hedge,” he said.

The PPF, one of the founding investors of the Pensions Infrastructure Platform, only had £33m (€39.5m) invested in infrastructure at the end of its 2011-12 financial year.

The figure is expected to rise once the joint venture with the NAPF launches later this year, due to its £100m founding commitment.

 

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