UK - The funding level of the Pension Protection Fund (PPF) improved in 2007/08 from 88% to 91%, despite reporting an annual investment return of 3.6% - 4.1 percentage points below its target benchmark.

Figures from the PPF's annual report for the year to 31 March 2008 showed by the end of the period it had collected £361m (€453m) of the estimated £675m PPF levy, while the final total for the levy year 2007/08 expected to reach £575m.

The PPF revealed its invested assets, plus cash deposits, doubled over the year from £743m in March 2007 to £1.47bn in 2008, of which £1.33bn was invested in line with its statements of investment principles (SIP), while around £130m of legacy assets from accepted schemes is 'parked' in pooled products - predominantly in UK fixed income assets - to await transition.

The report showed the fund's strategic asset allocation is 50% in global bonds, 20% in cash collateral, 12.5% in UK equities, 7.5% in global equities, 7.5% in property and 2.5% in currency assets.

However, the figures showed although "the impact on the fund of the difficult market conditions is likely to have been lower than the average UK defined benefit (DB) pension plan" because of its relatively low risk strategy, the fund only produced a return of 3.6% over the year compared to its target of 7.7% - which is set at 1.4% above the benchmark return of 6.3%.

The PPF admitted the shortfall of 4.1% could be attributed primarily to the overall investment strategy, as its equity and property allocations produced "negative results relative to cash", although it highlighted an underweight allocation to the worst performing asset classes "added marginally to performance".

Despite its poor performance, the PPF revealed its swap portfolio delivered a gain of £110m over the year, while its deficit dropped from £609m to £517m.

That said, officials acknowledged the lifeboat scheme remains in deficit and said the PPF is "seeking to build up appropriate reserves over time through prudent investment and income from our levy".

The PPF admitted while the number of claims on the PPF over the period had been "lower than expected" because employer solvency rates had remained steady, it said "but we are nevertheless anticipating the weakening economic situation to result in increased claims at some point during the next year and a half". 

Figures from the report also showed the PPF transferred £184m in assets from schemes that entered the organisation, while a further transfer of £132m was made in March 2008, although the PPF said it expects to recover around £429m in assets from insolvent employers in the future.

In 2007/08, 65 schemes completed the assessment period by the end of the year, with 38 schemes transferred to the PPF in the period, representing a total of 12,194 members.

In addition, it revealed a further 187 schemes remained in the assessment period at the end of Match 2008, equivalent to 120,000 members, although by the end of April the report showed more than 3,600 members were receiving compensation averaging at £4,000 per year, and that it had paid out more than £17m in compensation.

Partha Dasgupta, chief executive of the PPF, said: "Our third year of operations was an exciting one. We shepherded thousands of scheme members through our assessment period. We also collected a levy which was significantly closer to our estimate than the previous year."

Lawrence Churchill, chairman of the PPF, added: "The reduction in our deficit was a satisfactory result given the problems that have affected the capital and credit markets during the year. However, it is likely that we will see an increase in the number of insolvencies as the downturn bites and with markets at current levels, associated deficits in schemes entering the assessment period may be higher than we have seen to date."

Going forward, the organisation said it would be continuing its consultation on the long-term development of the pension protection levy and building on the work carried out during 2007/08.

"Whatever challenges we may face in the future, our ambition is to make sure the PPF remains a respected and established institution which adheres to our main principles of simplicity, fairness and proportionality," added Churchill.

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