Alan Rubenstein: The pensions parachute is set to expand – but its boss wants limits

The Business Interview: He pays the pensions when companies fail. The chief executive talks to James Moore about banks, buyouts and the future
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The Independent Online

Alan Rubenstein is not a household name at the moment, but perhaps he should be. As the chief executive of the Pensions Protection Fund, he is already responsible, in one way or another, for the retirement income of about a quarter of a million people. If the projections are to be believed, he might find himself running what amounts to Britain's biggest pension fund before too long as the credit crunch forces increasing numbers of companies with under-funded pension schemes, schemes into insolvency, sending their employees to his door.

On this point, Mr Rubenstein is not so sure. He looks more than a little uncomfortable at the thought of running the country's biggest private retirment scheme, and says that claims are running at a surprisingly slow rate. "If you look at the rate of claims of defined benefit schemes coming in at the moment, we've not seen a marked increase," he adds. "In fact, for the last three months we have been running below the levels we had seen this time 12 months ago.

"Typically, we have seen something between 80 and 120 claims a year, and we're still in line for that in the current year. I suppose what we keep saying to ourselves is that if you think about the way the economy and insolvencies work, you would expect the peak of insolvencies to lag the bottom of the economic cycle by two or three quarters.

"We are certainly prepared for an upturn in the number of claims coming into the PPF in the final quarter of this year, and in the beginning of next year. But thus far we haven't seen the kind of marked increase that you might have expected." So why does he think this is? he explains: "It is when banks start to see light at the end of the tunnel that they start to turn the screws on people. They'll support people through the worst of it in the hope of getting a better return, but then ..."

Oh dear. Of course, Mr Rubenstein knows a thing or two about banking, having spent much of his career at investment banks, or at least the part of that industry that caters for pension funds, after taking the traditional Edinburgh path of actuarial training at one of the City's many insurance companies (Scottish Widows in his case). His most recent employer was Lehman Brothers, although he was not one of those carrying their belongings out in a bin liner when the bank collapsed.

"Books will be written by people who knew far more about what went on than I do," he says, offering a nonchalant shrug when asked about his time working at the one-time titan of Wall Street as it teetered on the brink of collapse.

"Being there as an observer I thought it was very sad," he recalls. "When I joined it was because it was a firm that was clearly ambitious and clearly had some very able people. It was something I wanted to be part of, so I was very sad, but that's life and you move on. Now I'm doing this and having a great time."

Talking of banks, does he not feel that the PPF should be looking after the likes of Bradford & Bingley and Northern Rock, whose pension schemes have in fact been guaranteed by the Government when they were taken into public ownership? There has been much talk about the "moral hazard" of offering guarantees of full compensation to people caught up in collapses, given that these guarantees would appear to encourage irresponsible behaviour – why worry about risk if you know someone will bail you out in full?

The PPF, for example, only pays 90 per cent of what its clients were promised by their employers before they went bust, and there is also a cap. Yet B&B and Northern Rock staff (including the former chief executive of the latter, Adam Applegarth) will get their pensions paid in full. Is this fair? Mr Rubenstein ducks the question. "No, they are not insolvent employers, and so their schemes are not in assessment," he says. "The eligibility for the PPF is set out in the legislation. In any event, whoever bought them could choose to rescue their schemes."

And what about the other banks where there is also an implied guarantee? "I think [the] Government took the view on RBS that it needed to be saved. We'll never know what would have happened, had they allowed RBS to go. It's not for me to take a judgement but, having lived through Lehman, if you think Lehman was bad can you imagine what would have happened if RBS and Lloyds had been allowed to go? So you've got to put these things in the big picture."

He continues: "All you can do is look at the schemes that are eligible to us. You go back to the debate in Parliament, they were very careful that compensation was set below what they would have got if not retired. Deliberately so, but sufficiently close that people didn't lose out badly. If you look at compensation being paid today to people in receipt of PPF, that bunch of people have an average annual pension from us of about £4,000 a year. It doesn't sound a lot, but to many of them its not too much hyperbole to say it's life-changing, the difference between living in their own home and going into care. If we weren't there, they would have been thrown on the state by other means."

In the near future, keeping those people's pensions funded by the levy charged on the industry is the next issue. Tthere are moves afoot to alter how it is charged, although Mr Rubenstein reckons the PPF offers good value, charging an average of 2.5 basis points, when most fund managers charge schemes 25 basis points (0.25 per cent) or even more.

In the longer term, Mr Rubenstein does not want to run the biggest pension fund in the UK. He hopes the Pensions Regulator will ensure that most, if not all, schemes are fully funded, so that when their sponsoring companies collapse, they will be able to be bought out by insurance companies. They will be able to run them off. The pensions buyout market, however, has not been without controversy. It has attracted many former insurance executives who see the opportunity to make a buck, and other organisations offering to take pensions off the hands of their sponsoring employers for a significant fee, and then setting up all sorts of complex financial engineering to make even more money for themselves. Mr Rubenstein says he does support pension buyouts – it is just that he would rather they were handled by rather more traditional firms, such as established insurance companies.

"We are a compensation scheme, remember, and we were deliberately set up by Parliament to be a compensation scheme. People have got this idea that I'm against the pension buyout market. I'm not. What we want to see is a flourishing buyout market but one which is properly capitalised, To me that means insurance-style buyouts."

He says he is not being prescriptive and does not want to stifle innovation. He just wants things done properly so people don't lost out. "I don't mind who provides the start-up capital so long as it is a properly established, properly funded, properly regulated business. I even don't have so much of an issue with the so-called non-insured buyouts provided they are coming from a regulated provider with sufficient capital. I just find it difficult to see how they achieve that, which is why I've a bias towards the insurance providers. We want to see creativity. What we don't want to see is people getting ripped off." Amen to that.

Alan Rubenstein: The CV

* Joined the PPF from Lehman Brothers, where he was a managing director responsible for setting up its pensions advisory group.

* Previously spent eight years at Morgan Stanley and worked at BZW and Lucas Varity Fund Management.

* Qualified as an actuary with Scottish Widows, he has also sat on the Takeover Panel and served as vice-chairman of the National Association of Pension Funds.

* Aged 53 and married with two daughters, he lives in Surrey.