The Department for Work and Pensions (DWP) should reassess how its working relationship with the Pension Protection Fund (PPF) operates to ensure emerging issues are handled quickly, a governmental review of the lifeboat has stated.

The review, which was led by former The Pensions Regulator (TPR) chief executive, Lesley Titcomb, concluded that the PPF was “a well-run public body offering high standards of service and value for money to those who use it and pay for it”.

It also stated that the lifeboat has a good relationship with the DWP, and is highly regarded by the full range of its stakeholders, although she outlined some areas of improvement, focusing on areas where there is an opportunity to enhance rather than a need to rectify.

In particular, the review suggested that there is an opportunity for the PPF to share its good practice in certain areas more widely and an opportunity for the DWP and the PPF to consider whether it and its expertise can be used in other ways for public benefit.

Indeed, Titcomb explained that whilst the day-to-day working relationship between DWP and PPF is good, there are few opportunities to discuss long-term strategic issues relating to the future of the PPF or wider policy issues.

In light of this, she encouraged the DWP and the PPF work together to explore whether it is feasible for the PPF’s skills and capabilities to be used in other ways for public benefit.

She also encouraged DWP and the PPF work together to understand the implications of the PPF’s funding position in light of expected future developments in the population of defined benefit (DB) pension schemes and plan "well ahead" for any legislative changes that might be needed.

In addition to this, the review suggested that the DWP and PPF should be working collaboratively to ensure any necessary changes are made to ensure that the PPF annual levy can be reduced easily, but that the PPF retains the freedom to reintroduce or raise the levy again should circumstances change.

Indeed, this is an area that has been repeatedly highlighted as a concern by industry experts and the lifeboat itself, with the PPF recently confirming that seeking legislative change to increase flexibility in relation to setting the levy estimate will be a priority going forward.

That DWP and PPF reassess how their working relationship operates so as to ensure emerging issues are handled quickly and collaboratively. This to include undertaking a lessons learnt exercise in relation to the Fraud Compensation Fund (FCF) project to determine how the use of a ‘task and finish’ Steering Group and other successful approaches can be replicated and the risk of any misalignment of interest in dealing with policy issues reduced.

More broadly, Titcomb argued that the administration levy should be abolished and, once the existing reserve is expended, the PPF be permitted to recover all its administrative costs via the levy which it collects itself.

Titcomb concluded that governance and risk management within the PPF are also “generally good”, stating that board and committees are operating well and with “a clear mission, purpose and values”.

However, she suggested that the PPF should conclude its review of the responsibilities of the second line risk function as soon as possible, also encouraging the Risk and Audit Committee to have occasional meetings with a specific focus on risk, rather than both audit and risk.

Titcomb also outlined further recommendations around the lifeboat's investment strategy, clarifying however, that the PPF's recent performance against its investment benchmarks has been “outstanding”.

In particular, the review recommended that the board consider commissioning an independent review of the fund’s investment strategy and the associated Statement of Investment Principles and Strategic Asset Allocation.

It also encouraged PPF to take a "higher public profile" and share more information on its approach to investment management, particularly in relation to its industry leading commitment to responsible investing.

Titcomb additionally noted that, given the increased significance of the investment management function, the PPF may want to consider whether it would be appropriate to seek Financial Conduct Authority (FCA) authorisation and regulation, and start discussions with the DWP on any legislative change that would be required.

The review also addressed challenges around the Fraud Compensation Fund (FCF), stating that the "past two years have proved challenging", after a High Court ruling resulted in claims against the FCF being higher than has historically been the case.

Indeed, the Fraud Compensation Levy (FCL) was recently increased for future years and legislation is being passed to permit the government to make a loan to the PPF if required to meet FCF claims, although industry experts have raised concerns around this, calling for a review of the pension fraud compensation system.

In light of this, Titcomb recommended that, when the DWP decides to undertake a review, it should seek operational input from the PPF in relation to working with it and through pensions schemes in determining the nature and level of compensation required.

Commenting in the foreword, Titcomb stated: "The PPF provides a critical safety net for the many millions of people who save through defined benefit occupational pension schemes when something goes wrong with the sponsoring employer.

"I spoke to a wide range of stakeholders including representatives of those who are protected by the PPF and those who fund it. All of them speak highly of it and are very supportive of its role and the way it operates.

"The key recommendations in the report relate to the long-term direction of the PPF. These matters remain pertinent issues for PPF and their relevance is unchanged by what happened in the events related to liability-driven investment (LDI)."

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