Will The Pension Protection Fund Be Called Into Action Soon?
The latest news from the corporate pension fund market does not make good reading with deficits rising to some £80 billion, a jump of £17 billion in the month of July alone!
Many experts fear that if inflation continues to rise, economic activity continues to fall and more and more companies struggle we will see a major company go under over the next 12 months. Many of these companies have final salary schemes which are severely underfunded due to a mix of falling asset returns and rising inflation adding to the future cost of pension payments.
If a large company with a sizable underfunded pension fund was to go under this would bring the Pension Protection Fund (PPF) into play. There is a great possibility that the funds currently available to cover shortfalls on failed pension schemes would not be anywhere enough, forcing the government to add to the weak funding position of the PPF.
On a separate note, for the future, the PPF administrators are considering charging pension schemes which invest in more risky assets a higher annual premium. While this may force some to change their investment criteria it would not necessarily reduce the already massive final salary pension fund deficits in the UK today.
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