PPF enhances risk modelling

The UK Pension Protection Fund (PPF) has added a macroeconomic scenario generator to its in-house long-term risk model.

The fund has licensed the Economic Scenario Generator software from the Edinburgh consultancy Barrie & Hibbert. It plans to use the software to model future demand for pension support payments - based on forecasts of inflation, insolvency rates and other factors - and also the fund's own performance.

PPF chief executive Partha Dasgupta is overseeing the fund's move from a flat rate levy on all employee pension funds to a fee based on the risk involved in each fund's portfolio - riskier funds make larger contributions, as they are more likely to need the PPF's support.

As part of this transition, Dasgupta told Risk in December 2005, the PPF is developing its own risk model - off-the-shelf models were unsuitable, as the PPF cannot easily predict its own future cashflow. "Defined benefit pensions are undergoing a period of significant change, and schemes’ arrangements for dealing with risk and liability are under closer scrutiny than at any time in their history. It is vital that the PPF stays on top of these changes, and Barrie & Hibbert’s ESG will play a core role in enabling us to do this," he said.