Britain's Answer to PBGC Opens for Business

April 6, 2005 ( - Britain's Pension Protection Fund (PPF), which started work on Wednesday as the UK's answer to the US Pension Benefit Guaranty Corporation (PBGC) as the private-sector pension insurer, will invest in fixed income to start, officials said.

The PPF , set up by the government after a series of high-profile pension fund failures, will first hold secure bonds, but could later turn to equities, property or other assets, chairman Lawrence Churchill told Reuters in an interview. “We will just invest in various types of fixed income and debt securities. In the longer term … then we will need a broader asset allocation strategy,” Churchill said.

Modeled loosely after the PBGC, the PPF will take a £150 million pound ($281.6 million) annual compulsory levy on company-run defined benefit pensions and any remaining assets from wound-up retirement plans.

The PPF will take a liability-driven investment approach, which relates to the growing practice of matching assets as closely as possible to expected pension payments rather than just trying to beat a market index like the FTSE, Churchill said.   “We won’t know what our liabilities are going to be,” the official told Reuters. “We will take a view of the duration of liabilities and when we need to take out cash and devise our asset allocation accordingly.”

A Busy Start

Churchill expects the PPF to deal with a number of relatively large pension fund pleas for help over the next 12 months, but he could not say if materials firm Turner and Newall and retail chain Allders would be on the list. The companies are under administration with combined pension deficits of more than 900 million pounds.

Churchill noted that in the case of T&N, the firm’s plight was complex as it was a subsidiary of US auto firm Federal-Mogul (See Federal-Mogul Withdraws Offer to Fund UK Subsidiary’s Pension Scheme ), currently restructuring its finances under the protection of the US Chapter 11 bankruptcy code.

The PPF is likely to face a heavy caseload of requests for help in the first 12 months of the organization’s life.   “There’s been a period of notice about the PPF coming into existence, and there is likely to be a higher (caseload) than in year two or year three,” Churchill said. “We may get up to 250 scheme claims this year, most of them relatively small.”

The government has said it will not underwrite any PPF payments with taxpayers’ money, prompting industry groups to claim it could be swamped if several big companies go bankrupt with a large retirement scheme black hole.

More information about the new agency is at .