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A review by the Pension Protection Fund, London, recommended that the Lifeboat scheme share its successes, knowledge and good practice more widely – particularly when it comes to alternatives and responsible investing.
The departmental review was sponsored by the Department for Work and Pensions.
Leslie Titcombe, the independent lead reviewer, summarized her findings saying that the PPF “could look to play a greater leadership role in the UK investment industry by working with others to encourage the development of appropriately structured alternative investment opportunities, for example in UK infrastructure.”
The lifeboat fund for pension schemes of insolvent UK companies should take on a higher public profile and share more information about its approach to investment management, potentially in its annual report “to provide insight into specific investment choices,” Ms Titcombe said. . She said the fund should use its status as a public entity to encourage the development of more UK-focused well-structured alternative investment opportunities.
Another recommendation is that the board of the PPF consider appointing an independent review of its investment approach. Ms Titcombe noted that the PPF is set to agree and publish its new funding strategy, the upcoming review of its investment principles and its strategic asset allocation “particularly significant.”
An independent review of its investment approach “will provide the board and other stakeholders with a fresh look at robust, independent assurance that the investment approach is appropriate to support the revised funding objective(s) and that the strategic asset allocation reflects this,” Ms Titcomb said.
The PPF, which has about £39 billion ($47.3 billion) in assets, had a strategic asset allocation of assets earning a 41.5% return; 40% liability-hedging assets; 12.5% hybrid assets; and 6% in cash by September 2021.
A further recommendation was that PPF boards and executives should consider whether applying for authorization and regulation from the Financial Conduct Authority — either for the PPF or for a dedicated subsidiary — would be appropriate.
The recommendation was made “in view of the growing importance of the investment management function” in the PPF. The PPF “undertakes activities that are considered to fall within the scope of financial services regulation in other institutions. It is also possible that if the PPF is considered to undertake other responsibilities, the question is whether it should be. Subject to financial regulation again arises.” Can,” the review said.
A number of internal interviews were carried out as part of the review, with varying opinions on the recommendation on FCA authorisation. Some felt that being authorized and regulated by the FCA would be beneficial for the PPF, making it even more attractive as an employer; While others said it would create “a great deal of extra work”.
The review added that “the PPF needs to resolve its position on this issue in the near future.”
The review was conducted in the first quarter of the year and considered the “form and function” of the PPF to see if it is fulfilling the purpose and objectives for which it was created in 2005 and whether it is still necessary.
Ms Titcombe added that “the PPF appears to be a well-run public body offering high standards of service and value for money to those who use and pay for it.” She also noted that her recommendations are therefore limited in number, focusing on areas where there is an opportunity for improvement rather than a need for improvement.
A spokesperson for the PPF said: “We are pleased that the DWP’s review of the PPF has now been published and that its recommendations are closely aligned with our strategic priorities. We look forward to further dialogue around the specific issues raised in the new year.”
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