PPF anticipates rise in claims over the next 18 months

The PPF's annual report, published last week, showed the number of claims during the year to 30 April was less than expected, as rates of insolvency among sponsoring employers of defined benefit pension schemes remained steady.

But the report stated the PPF nevertheless anticipated the weakening economic situation to result in increased claims at some point during the next year and a half.

By the end of April, more than 3,600 people were receiving PPF compensation, and the fund had paid out a total of more than £17m.

Also 187 pension schemes, representing almost 120,000 members, started the PPF's assessment process in order to ascertain their financial health and the possible need for compensation to be paid out by the fund in the future.

During the year the PPF, which was set up in April 2005, continued to focus on achieving long-term financial stability, reducing its deficit from £609m to £517m.

The PPF is funded primarily by the pension protection levy as well as investment income from the assets of pension schemes transferred to the fund, which have now passed £1bn in total.

Lawrence Churchill, chairman of the PPF, said: "The reduction in our deficit was a satisfactory result given the problems that have affected the capital and credit markets during the year.

"However it is likely that we will see an increase in the number of insolvencies as the downturn bites and, with markets at current levels, associated deficits in schemes entering the assessment period may be higher than we have seen to date.

"But whatever challenges we may face in the future, our ambition is to make sure the PPF remains a respected and established institution which adheres to our main principles of simplicity, fairness and proportionality."

Robert Lockie, certified financial planner for London-based IFA Bloomsbury Financial Planning, said: "Although I have not had experience of the PPF through my own clients, it seems generally a good thing to pull in occupational schemes that do not have enough money to pay out pensions.

"The treatment of members and deferred members is not particularly equal. If you have a chunk of deferred pension and have not yet retired, you do worse than someone who has retired, and who already has a pension.

"In addition, if they keep funding it over the years from those pension schemes which are still going, it might accelerate the trend for existing schemes to close entry to new members, or to close new benefits to existing members, since they are funding liabilities for which they have no responsibility."