The Library
The Pension Protection Fund
Tools
UNSPECIFIED (2005) The Pension Protection Fund. FISCAL STUDIES, 26 (2). pp. 139-167. ISSN 0143-5671.
Research output not available from this repository.
Request-a-Copy directly from author or use local Library Get it For Me service.
Abstract
We develop a model of the Pension Protection Fund (PPF), a defined benefit pension guarantee system for the UK, based on an analogy between pension liabilities and corporate debt obligations. We show that the PPF is likely to face many years of low claims interspersed irregularly with periods of very large claims. There is a significant chance that these claims will be so large that the PPF will default on its liabilities, leaving the government with no option but to bail it out. The cause of this problem is the double impact of a fall in equity prices on the PPF: it makes sponsor firms more likely to default and it makes defaulted plans more likely to be underfunded. We use our model to derive a fair premium for PPF insurance under different circumstances, to estimate the extent of cross-subsidies in the PPF between strong and weak sponsors, and to show that risk-rated premiums are unlikely to have a substantial effect on either the size or the lumpiness of claims. We argue that for the PPF to operate effectively, it should be introduced in tandem with strong minimum funding requirements and a lower level of benefit guarantee than at present.
Item Type: | Journal Article | ||||
---|---|---|---|---|---|
Subjects: | H Social Sciences > HG Finance H Social Sciences > HC Economic History and Conditions |
||||
Journal or Publication Title: | FISCAL STUDIES | ||||
Publisher: | BLACKWELL PUBLISHING INC | ||||
ISSN: | 0143-5671 | ||||
Official Date: | June 2005 | ||||
Dates: |
|
||||
Volume: | 26 | ||||
Number: | 2 | ||||
Number of Pages: | 29 | ||||
Page Range: | pp. 139-167 | ||||
Publication Status: | Published |
Data sourced from Thomson Reuters' Web of Knowledge
Request changes or add full text files to a record
Repository staff actions (login required)
View Item |