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Mercer echoes calls for PPF levy cap in UK

UK - The Pension Protection Fund (PPF) levy increase could well exceed 25% for a number of schemes, Mercer has warned, as it suggested that the government should amend the law to prevent the steep rise in payments.

The consultancy’s warning comes after the UK business lobby CBI urged action, while Towers Watson had previously warned that the risk-based calculation would mean a 25% rise next year.

Mike Fenton, principal at Mercer, noted that the PPF would not be able to increase the aggregate levy amount by more than a quarter, but stressed that higher than average increases could affect individual pension funds.

“Some schemes could suffer increases of over 25% and others may see no increase at all,” he said, adding that the figure could be amended, as it was a statutory limit.

“If the pensions minister, Steve Webb, wants to ease the financial burden on pension schemes due to current market circumstances, it is in the government’s gift to amend the ceiling.”

He suggested that slashing the number to zero would even be possible, completely avoiding any increase next year.

Fenton nonetheless suggested that schemes keep in mind their own position, highlighting that even shifting down one category in the Dun & Bradstreet (D&B) risk categories could significantly increase the risk-based aspect of the levy, resulting in a 50% rise.

The UK lifeboat scheme’s executive director for financial risk Martin Clarke last month defended the expected increase, noting that levy payers had previously welcomed the new risk-based calculation.

Reacting to the CBI’s calls in July for change to the levy, Clarke added that the health of defined benefit schemes had deteriorated “significantly” in the past few months. 

“We have seen funding levels fall to record levels, resulting in a six-fold increase in risk,” he said. “Therefore, it should come as no surprise that, as we work towards an announcement in September, the 2013-14 levy is now expected to rise.”

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