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DISCUSSION PAPER PI-0711

Financial risks and the Pension Protection Fund: Can it survive them?

David Blake, John Cotter & Kevin Dowd

This paper discusses the financial risks faced by the UK Pension Protection Fund (PPF)
and what, if anything, it can do about them. It draws lessons from the regulatory regimes under
which other fi nancial institutions, such as banks and insurance companies, operate and asks why
pension funds are treated differently. It also reviews the experience with other Government-sponsored
insurance schemes, such as the US Pension Benefi t Guaranty Corporation, upon which the
PPF is modelled. We conclude that the PPF will live under the permanent risk of insolvency as a
consequence of the moral hazard, adverse selection and, especially, systemic risks that it faces.

Key words: Pension Protection Fund, financial risks, insolvency, moral hazard, adverse
selection & financial regulation