PPF shares levy more fairly across pension schemes

The Pension Protection Fund (PPF) estimates that it needs to collect £675 million in pension protection levies in 2008-2009 – a figure unchanged from 2007-2008.

The PPF confirmed that this levy estimate will remain stable for the next three financial years unless there is significant change in the level of risk faced by the PPF, although it will be indexed against average earnings.

It also announced that it has raised the funding level at which schemes pay no risk-based levy from 125 per cent to 140 per cent. This will ensure that schemes pay a levy which more accurately reflects the long-term risk they pose to the PPF while providing them with the right incentives to reduce that risk.

PPF Chairman, Lawrence Churchill, said: “We have recognised with these changes that even well-funded schemes pose long-term risks to the PPF. We now intend to work more closely with industry so that we better understand those long-term risks and how they can be better managed. No one should forget that levy bills will only come down when schemes reduce their risks.”

Added PPF Chief Executive, Partha Dasgupta: “As well as setting a stable levy estimate – which is what industry asked for – we have also improved the way the levy is calculated so that it is spread more fairly across all eligible pension schemes. This will particularly benefit smaller schemes.

“But, in providing this stability and fairness, we must ensure that the PPF has the financial resilience to continue to provide security in retirements for our members now and a long time into the future.”

These proposals were developed following an eight week consultation which garnered more than 50 responses from industry.

Three main changes have been made to the levy calculations:

changing proposed deadlines at which actions taken by pension schemes to improve their funding positions will be taken into account when calculating individual levy bills - this was specifically asked for by industry.

raising the funding limits at which schemes pay a reduced levy from 104 per cent to 120 per cent, and at which they pay no levy at all from 125 per cent to 140 per cent, and

reducing the levy cap from 1.25 per cent of liabilities to one per cent of liabilities - this continues to protect the weakest five per cent of schemes from disproportionately high levy bills.