What Can Pension Schemes Learn from the PPF ?

The PPF publishes regular updates on the financial health of DB pension schemes in the UK (the PPF 7800 index) and also its own funding position.

In recent times there has been quite some contrast between the two sets of figures (thanks to Pensions Expert for a great article highlighting this.

Piktochart PPF vs Everyone (2)

Sure, the PPF collects a levy (from schemes) whereas individual schemes have varying levels of sponsor support and contribution, however the biggest factor in the contrasting fortunes is the investment strategy.

Perhaps the PPF, as a c£20bn investor simply has access to strategies and tools that are hopelessly beyond most pension schemes? In some cases this is true, but taking a look at the really key drivers of the PPF’s recent success, this isn’t really the case.

In the statement, Andy McKinnon, chief financial officer at the PPF, said: “The greatest impact on our financial position has been the increase in the value of our liabilities caused by falling interest rates…

“The matching effect of our investment programme has acted to mitigate this and contributed a further £1bn to the surplus.”

Liability matching techniques are available to pretty much any pension scheme (the advent of pooled LDI has made available very effective solutions even to the smallest schemes). It’s just that the PPF have adopted these techniques with great success, the track record being clear to see.

With interest rate risk having such a large bearing on most pension funds, pension schemes have the option to play a continued game of Snakes & Ladders as rates rise and fall, or to do as the PPF have and close down these risks, instead taking measured amounts of risk in other areas.

The track records of the two results are pretty clear.

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