Feeling the strain: is the PPF at death's door?

When the Pension Protection Fund was created there were many who warned of a potential black-hole scenario. The fear was that if the UK headed towards some kind of depression meltdown, the PPF lifeboat would be overburdened by all the final salary schemes dumped in its lap by failed companies.

Moreover, the risk-based levy raised by the PPF from companies with final salary pension plans would have to increase, making it more unaffordable and, in turn, causing yet more schemes to tip into the PPF.

However, the analysis sounded a little too pessimistic for its own good, and even those who put it forward probably did not really believe it. In reality, as we head into the worst recession since the war, things are holding up rather well.

Companies are tipping their pension schemes into the PPF, of course, the recent spectacular headline-grabbing instances being Lehmans in the UK, Woolworths, Waterford Wedgwood and Canadian telecoms manufacturer Nortel’s British operations. The latter scheme was reported by The Guardian to have come with a £500m deficit.

At its last set of accounts, the PPF had total assets of £1.72bn, on top of which some £3.80bn of assets from pension schemes that had applied to enter the PPF, but which were undergoing an assessment period. Overall, the PPF reported a deficit (net liabilities) of £517m as of 31 March last year.

But, so far, despite these major corporate failures and the deficit in the PPF accounts, the Fund is doing very nicely, insists a spokesperson for the PPF. He adds that a new chief executive, Alan Rubenstein, joins on 1 April from Lehmans (having qualified as an actuary with the more prosaic Scottish Widows). The Fund has £3bn of assets (excluding those pension schemes still being appraised and not yet formally entered into the PPF) and it is currently paying out no more than £4m in benefits each month.

That is a far cry from finding your coffers ringing empty. Moreover, the sp okesperson says, there is, as yet, no wall of failed UK enterprises threatening to topple their schemes into the fund.