UK - A new index to be launched by the Pension Protection Fund (PPF) has been decried as a waste of levy income that could drive pension funds to adopt a "herd mentality" to their investments, potentially damaging returns.
The PPF, the UK government's lifeboat for pension schemes that are not able to meet their liabilities, will launch a monthly index, the PPF 7800, next week revealing the collective funding positions of 7,800 private sector pension schemes in the UK.
The index will provide monthly updates on the latest estimated funding positions of DB schemes against their PPF liabilities in an effort to improve awareness within the pensions industry of the level of risk in the system.
However Danny Vassiliades, principal actuarial consultants Punter Southall, said an index of pension scheme deficits could have unintended consequences.
"By publishing an index the PPF may persuade funds that they are taking too much or too little risk in comparison [to their peers] and may encourage them to follow a ‘herd' mentality rather than making the best decisions for their own particular circumstances," he said.
"We fail to see this index is necessary, well-thought through or useful. At its worst, it could make funds change their behaviour for the worse and be a waste of PPF levy income."
A spokesman for the PPF rejected the criticism, claiming it was an additional tool which not only helped monitor risk to the PPF but allowed industry participants to make more informed decisions about their pension schemes.
"It has been developed in-house as part of the ongoing risk reduction work and is at zero additional cost," he said.
"The data provides an aggregate picture of deficits and liabilities rather than details of individual schemes so comparisons scheme by scheme will not be possible."
Partha Dasgupta, chief executive of the PPF, added: "I believe the PPF 7800 index can act as a valuable monthly barometer for the pensions industry about the level of pension scheme funding and ensure that it is better informed than ever before."
New research from Pension Capital Strategies, a pensions risk management adviser, revealed FTSE 100 pension schemes have moved into surplus for the first time in five years.
The total surplus of £4bn (€5.9bn) reflects a bullish equity market and rising bond yields, which reduced the cost of liabilities.
The PPF index will be calculated using data based on what would have to be paid by the lifeboat to an insurer if the scheme sponsor went bankrupt.
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