Pension Protection Fund faces a long and lingering death

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From Mr Mike Fosberry.

Sir, Alan Rubenstein has an unenviable task akin to King Canute in holding back the tide of likely claims on the Pension Protection Fund (“Pensions body seeks change to payments”, April 6). The PPF was doomed from the start, its demise accelerated by the recession. Based on the flawed and bankrupt US model, its existence is based on the premise that employers under severe financial strain will be able to pay ever- increasing levies into the scheme to support the pensions of failed companies.

At the same time, employers must try to satisfy their own pension scheme trustees by making good deficits that have increased as investment values and interest rates have fallen.

The idea that new schemes coming into the PPF help its liquidity as the PPF takes on the scheme assets looks a little like another Ponzi scheme, ie as long as we have a flow of new schemes we are solvent but, as soon as it stops, reality will hit hard as the liabilities of those schemes begin to bite back.

It could be a long and lingering death for the PPF as the government will have little left in its coffers to support it, and over time benefits payable under the PPF will simply be scaled back as the burden of levies will increasingly fall on businesses who cannot afford to pay simply to bail out others. And why should they if it threatens their very existence?

Defined benefit schemes are now dead in the water other than those in the public sector, where we the taxpayer via the government is the ultimate guarantor rather than the PPF. Double standards are at work here in a very big way as surely the government should also stand behind the PPF in a fair and just society?