Pension Protection Fund

HC Deb 15 March 2004 vol 419 cc92-3W

Mr. Webb

To ask the Secretary of State for Work and Pensions pursuant to his Statement on 2 March 2004,Official Report, column 763, if he will place in the Library a copy of the actuarial simulations that have been produced for the projected finances of the pension protection fund on a range of different assumptions. [161622]

Malcolm Wicks

The original cost of £340 million to £375 million is the difference between the assets and the liabilities of the schemes taken over by the PIT in a year. We used the following assumptions to arrive at that cost:

1. (i) Data on the MFR funding levels of just over 1,000 schemes that had an MFR valuation with an effective date between April 1997 and April 2000 were used. Adjustments were made for each scheme in the sample in order to estimate the up-to-date funding position. The results were scaled up to the total for all private sector occupational pension schemes.
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2. (ii) The value of the liabilities if such schemes were to fall within the responsibility of the pensions protection fund were estimated on a basis equivalent to midway between the current MFR basis and the full insurance buyout costs for the liabilities.
3. (iii) The cost will obviously depend on the number of firms going insolvent. Allowance was made for the possibility of normal, poor and extreme years as far as bankruptcies are concerned, but on average over a 20-year period, the probabilities of a scheme becoming a liability of the PPF were assumed to be between about 0.3 per cent. a year for large schemes and 1 per cent. a year for small schemes. This assumed level of bankruptcy is cautious, especially given that it is very rare for large companies to go bankrupt.
4. (iv) Allowance was made for the impact of the suggested salary cap using data on the earnings of occupational schemes members from the Family Resources Survey.

These costs were recently recalculated at £300 million using the same methodology, but updated to take account of current market conditions and the decisions taken on the precise nature of the PPF compensation payable.