UK – The following is a selection of comments from pensions consultants in reaction to today’s consultation on the risk-based levy issued by the Pension Protection Fund.

- Aaron Punwani, partner and head of trustee consulting at Lane Clark & Peacock, said: "We welcome the limit on the amount of the risk-based levy payable by an individual pension scheme, but it seems that the maximum levy could be in excess of 4% of the pension scheme's assets in relevant cases.

“This means that, over a 10-year period, a quarter or even more of the scheme's assets could have been paid out as PPF levies, wrecking their chances of ever getting back to full funding. It is difficult to see that this will be much comfort to trustees of under funded schemes with weak sponsoring employers.”

- Stephen Yeo, partner at Watson Wyatt, said: "The PPF is proposing a risk-based levy that is not only based on the level of funding but is also closely based on the probability that a company will go bust within one year.

“While this will be welcomed by employers with good credit standing, it will have significant consequences for the weakest employers, who could have to pay an annual levy of as much as 3% of their protected pension liabilities.

“The proposals for sharing the cost of the levy among schemes seem generally fair but will be unaffordable to some employers. This isn't the fault of the PPF Board, but is a consequence of the generous level of benefits to be paid from the PPF.

"More ominously, the PPF has today admitted that the aggregate levy is likely to be more than its previous estimate of £300 million each year. Remarkably, it notes that every single independent estimate of the required levy has produced an answer higher than the figure produced by the Government to support its contention that the Pensions Act would be cost neutral.”

- Tim Keogh, worldwide partner at Mercer Human Resource Consulting, said: “The best way for the PPF to avoid claims is to improve pension scheme funding, and one way to achieve this is through levies which incentivise the correct behaviour and penalise underfunding.

“Some will argue that money paid to the PPF could otherwise be used to improve scheme funding levels. The key question is whether this would happen of its own accord. Rather than wait and see, the PPF wants to put in place clear incentives for funding levels to be improved.”

“The politics surrounding these proposals will be interesting. If the PPF were a commercial insurance company, it would need to charge #1-2bn in premiums. But the Government has promised UK companies a lower burden, and it looks like this will be the focus of the debate over the next few months.”

Russell Aguis, director of the Higham Group, said: “Whilst credit ratings are the most objective measure of insolvency, they do not allow for recoveries on insolvency, which may vary significantly between companies. It may therefore benefit the PPF if an allowance for recoveries could also be factored into the equation. If this were possible, asset coverage could then be determined for the scheme as a whole on insolvency.”