You are here: Skip Navigation LinksHome > Investment


In September 2017, the Board of the Pension Protection Fund published its latest Statement of Investment Principles’ on its website. The Statement sets out the Board’s principles and policies governing the investment of its assets, and demonstrates the Pension Protection Fund’s commitment to managing its assets effectively and appropriately to balance the interests of both levy payers and beneficiaries alike.


PPF Investment Objectives

The primary objective of the Fund is to have sufficient funds to pay compensation to members of schemes that have transferred to the Fund.

The Fund has set an investment strategy aimed at achieving a balance between protecting compensation payments for actual and potential members of schemes whilst setting a fair and proportional levy. This is achieved by adopting a bespoke liability driven investment strategy that targets an expected out-performance over the liability benchmark of 1.8 per cent pa.

The Board of the Pension Protection Fund targets a tracking-error relative to the liability of 3 per cent to 4.5 per cent pa excluding illiquidity risk, or 3.5 per cent  to 5 per cent overall..

The strategic asset allocation of the Fund is as follows:

Permitted Asset Class Strategic allocation


Asset benchmark index


Cash and Bonds
 - Cash
 - UK Gilts

 - Annuity Contracts

 - Global Govt Bonds

 - Global Aggregate Bonds
   (including credit and emerging market debt)


58 per cent

53-70 per cent



3-month Libor
FTSE Gilt All Stocks



JP Morgan Government Bond
Barclays Global Aggregate Bond 

JPM GBI-EM Diversified Suitable indices will be specified for particular credit market sub-sectors


Alternatives (including property, private equity, alternative credit, infrastructure, farmland and timberland, absolute return strategies)

22.5 per cent

15-27.5 per cent



Will vary according to the asset class



 - Public Equity


7 per cent

3-12 per cent



FTSE All-World Minimum Variance Index


Hybrid assets (illiquid assets with hedging characteristics)



12.5 per cent

0-15 per cent



Will vary according to the asset class

A portfolio of swaps, bonds and cash is applied to the above portfolio as an overlay to change the nature of the assets to mimic the expected liability cashflows.

The asset allocation is markedly different from the allocations of average UK DB pension schemes. This is due to the need for a low risk strategy that aims to be relatively uncorrelated to the funding levels of the schemes it protects since the Fund needs to be solvent at times when general pension schemes are significantly underfunded.

Alongside the strategic asset allocation the Board permits some tactical views to be taken to either enhance return or control risk and such positions operate within the overall 3.5 to 5 per cent pa range of market risk targeted by the Board.


Levy benefits and risks

An investment strategy benchmarked against the liabilities where the use of swaps removes interest rate and inflation rate risk helps to reduce the volatility of valuation of assets relative to liabilities. This can benefit the levy payer by helping to achieve a smooth levy to be set in future.

A low risk investment strategy also reduces the volatility of asset returns.

Seeking outperformance of 1.8 per cent pa over the liabilities provides some value for the levy payer and also provides a cushion against the residual risks the Pension Protection Fund faces.

The Fund is at particular risk to the possibility of interlinked insolvencies of companies. The Fund seeks to mitigate this risk by limiting exposure to investments with high credit risk.



Use of derivatives

The strategy is liability driven with an overlay on the nominal amount of the Fund’s expected liabilities. This overlay will remove the unrewarded risks of interest rate and inflation.

Derivatives are used to mitigate underlying portfolio exposures to foreign exchange rate fluctuations, interest rate fluctuations and movements in equity markets.

Where appropriate, derivatives will be used in the transition of assets from the legacy portfolio of schemes entering the Pension Protection Fund to the assets required for the investment strategy.



Benchmark Considerations

A bespoke liability driven investment strategy has been adopted to reflect the dynamic nature of the liabilities. The liabilities will change substantially over time as schemes enter into the Fund and as such the liability benchmark is changed and rebalanced regularly to reflect this.

An LDI framework provides a tailored investment strategy that helps manage the risks and conflicting needs of the Pension Protection Fund and provides a dynamic investment strategy to the dynamic liabilities and risks that the Fund faces.