UK - Alan Rubenstein, chief executive at the UK Pension Protection Fund (PPF), has confirmed that the levy for the lifeboat scheme will be increased from 2014-15.
Speaking at the National Association of Pension Funds’ annual conference, he said: “We have to recognise scheme funding has deteriorated significantly and places a bigger burden on the PPF. If the protection regime is to remain credible, it needs to be properly funded.”
He added: “Although we can hold the levy this year, we can’t do that every year, and a 10% increase is likely unless the market conditions change.”
The fund has collected more in 2012 than the anticipated £550m (€677m), partly due to low market valuations affecting funding levels, but also due to lower levels of contingent assets.
Recertification of these assets has fallen by 15%, while the level of new guarantees had fallen by half.
“We had been worried for some time about guarantees and whether trustees had been testing whether the assets were worth anything if the sponsor went bust, but we were surprised at the level of withdrawal of contingent assets,” Rubenstein said.
“It shows, however, that funding is better than covenant. If your scheme is fully funded, then no matter what happens to the company, there is no risk to us.”
Claims against the PPF have already exceeded £700m so far this year, considerably more than the current levy.
The risk to which the PPF is exposed has also increased steadily, almost to the £2bn peak that followed the fall of Lehman in 2008.
Although the PPF 7800 index showed as recently as March 2011 that schemes were at 105% funding, by the end of September, that figure was 80%, with combined deficits at £230bn.
Despite the likely increases and anger directed at the fund, many schemes will find they are better off due to the changes the PPF has made as a result of consultation, Rubenstein said.
He pointed out that the estimated £630m levy for 2013-14 was below 2007-08 and all the years up to 2011-12, and claimed that more than half of schemes would see their levy fall or rise by no more than 5%.
This makes no allowance for any contingent assets the schemes may introduce.
Rubenstein said the PPF’s long-term position was strong and that it remained on track to achieve its target funding of 110% by 2030.
“It is important to understand that, if we have a properly funded PPF, then we need to be sure we charge an appropriate levy,” he said.