PPF levy likely to continue to rise

The Pensions Protection Fund (PPF) annual report and accounts published on 25 October show that during the 2006/7 levy year, the PPF expected to receive £575m in levies but only collected £271m.

As a result, only 60% of the levy collected in the 2007/8 levy was risk related, compared to the 80% targeted by legislation.

Some difference can be explained by actions taken by employers which reduced the risk of claims on the PPF. However, there will also be cases where weaknesses in the measurement of levy rating factors have resulted in lower premiums.

The accounts also revealed that, despite relatively benign economic conditions, the PPF deficit had increased to £609m as at 31 March 2007, from £343m in March 2006. The increase is largely due to claims on the PPF being well above the levies it is collecting.

Deborah Cooper, Principal at Mercer, said: "Since it began, the PPF has collected less than it anticipated through the levy. The difference can only be partly explained by actions on behalf of sponsors that reduce the risks it faces. The levy is unsustainably low."

Dr Cooper continued: "Scheme sponsors that have made significant efforts to manage down their levies will be unhappy if they have to pay more to compensate for historic shortfalls. The PPF must ensure its levy formula provides a stronger incentive to achieve higher funding levels to protect it from high claim levels in the future. However, if the effect of the levy formula is that 40% of the amount collected is not risk related this seems unlikely to work."