The Pension Protection Fund (PPF), which helps insolvent firms safeguard employee pension schemes, is making plans to avoid a funding shortfall.

Currently, the PPF is dependent on the levy that companies with final salary schemes pay the fund each year to cover its payment quota. However, experts warn that as more firms close their defined benefit schemes to take up cheaper defined contribution funds, the levy will reduce considerably.

Alan Rubenstein, chief executive of the PPF said: “As the levy shrinks, we want to demonstrate that we have a plan in place to be able to pay benefits to all claimants.”

The fund will use part of the £4 billion of assets and levy funds it has received to invest in private equity firms and hopes to reach a 110 per cent insolvency level by 2030. The extra money generated will act as a buffer, which should be able to pay for the pensions of retired workers who are expected to live longer than today’s over 65s. It will also prevent smaller firms who choose to remain under the protection of the PPF from paying a larger levy if bigger companies close their defined contribution plans in the future.

Mr Rubenstein said: “This strategy makes public the work we have been doing behind the scenes since we opened our doors for business more than five years ago.”

He continued: “We think it is important that we expose our plans so we can show how we intend to ensure we have the financial resources needed to pay existing levels of compensation to current and future members of the PPF – and become self-sufficient by the time the level of risk to the PPF from future insolvencies has reduced substantially.”