NAPF Investment Conference: Trustees warned investment strategies to impact PPF levy

Pension trustees have been warned by the Pension Protection Fund (PPF) that if they pursue risky investment strategies then this could have an impact on their PPF levy.

Speaking at the National Association of Pension Funds (NAPF) Investment Conference in Edinburgh, Partha Dasgupta, chief executive of the PPF, said that it is likely to undertake a formal consultation on the impact of investment strategies on the levy later this year with a view to schemes with riskier investment profiles picking up a bigger share of the costs.

According to an investment survey of 95 pension schemes, carried out by the PPF and KPMG, only a small proportion of scheme liabilities have so far been immunised, matched or hedged by investments in bonds.

The PPF/KPMG research shows that where a scheme hedges a large proportion of the liabilities, funding tends to be nearer to 100% and where funding tends to be above or below 100%, the proportion of liabilities hedged is significantly lower.

Dasgupta said: “Our survey found that there has not been a headlong march into hedging as people first thought. During the next year, our survey shows that there will not be much activity in this area although it will increase during the next ten years, possibly as schemes realise the recovery plans they put forward to the Pensions Regulator.

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“We now want to ask the question: will investment strategies differ to such a degree as more funds use hedging strategies that they should be taken into account when we calculate the pension protection levy? We also want to highlight the impact that investment risk has on our own funding and, therefore, on people’s levy bills.”