The Pension Protection Fund (PPF) has announced that the increasing number and value of claims has led to its funding deficit more than doubling since last year.
According to its annual report, the PPF – which was established to compensate members of eligible defined benefit pension schemes in the event of an employer's insolvency – has revealed an increased deficit of £1.2billion in March 2009 – compared to a £517million deficit in the same period last year.
The report also shows that the PPF now has an investment portfolio valued at £2.9billion – achieving a return of 13.4 per cent, with more than 200,000 people receiving pension protection.
Commenting, Lawrence Churchill, PPF chairman, believes the economic downturn has highlighted "how vital PPF protection" is, saying that people do not want to return to a time when they lost their pension as well as their jobs.
"We expected that this year's claims would be larger than our levy so we were not surprised by these figures which have been impacted by market volatility and low interest rates," he said.
However, despite an increasing deficit in funding, Mr Churchill is adamant the pension protection framework has proved "resilient" in difficult times and says the PPF's confidence in paying members the compensation they are due is "undiminished".
"The liquidity of the PPF remains strong and we have kept our levy unchanged in real terms for next year," he added.
Alan Rubenstein, PPF chief executive, said he expected the deficit had fallen below the £1billion mark in September following the "lack of big claims and market improvements" since March.
However, he urged caution saying the PPF "cannot afford to be complacent" before adding: "Our position could yet be affected by increases in claims or by future movements in the financial markets between now and next March."
Praising the work of the PPF, Joanne Segers, chief executive of the National Association of Pension Funds, claims the PPF has played an "important role in helping to safeguard pensions for thousands of people".
Ms Segers welcomed the PPF's investment return over the last year, but added the findings of the report "only serve to strengthen the case for the Government formally acknowledging its role as the Pension Protection Fund's ultimate guarantor."
© Fair Investment Company Ltd