Pension Protection Fund changes investment criteria

The Pension Protection Fund (PPF), the safety net for the UK pension fund members, has today announced plans to widen its investment criteria to take in new areas of investment. Currently the PPF has a portfolio of around £4 billion which is predominantly invested in cash and bonds. The current benchmark target return for the fund is around 1.4% although this will be increased to 1.8% over the next 12 months when the range of investments eligible for the fund will be expanded.

There has been specific talk of investment into private equity firms and infrastructure projects in the UK which would complement the current investments and increase investment returns over time. However, the proposed investment into private equity firms is controversial because the UK authorities have been cracking down on this sector amid claims of undue risk taking and high remuneration and bonus packages. In reality the truth is that without private equity firms many companies in the UK would struggle to survive as not only do they offer capital but they also offer experienced business advice as well.

There is no doubt that the PPF will face more challenges and more pressure in the future as pension fund deficits in the UK continue to rise with more and more employees becoming concerned. There is talk in the longer term of reducing the levy on UK companies which funds the PPF and relying more upon investment returns from a fund which is expected to increase from £4 billion this year to £10 billion in the short term.