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PPF set to eye schemes’ investment strategy

UK – The Pension Protection Fund will look at pension funds’ investment strategies when assessing their contribution to the fund levy, says the fund’s chairman Lawrence Churchill.

Churchill told a conference organised by the Society of Pension Consultants that the 300 million-pound (428.1 million-euro) levy could be assessed in terms of the degree of under-funding and investment strategy.

The insolvency risk of the employer would also be considered, but Churchill said that small pension funds would not be burdened too much with the insolvency risk criterion.

The PPF, which received royal assent last week, will raise money taking the assets of an insolvent company sponsoring a defined benefit scheme and through different levies, including a fund levy.

The fund levy will be flat-rate for a little more than a year to become later a risk-based levy, or RBL.

One of the design principles for the levy is for there to be “a balance between cost of levy and value to scheme members”.

“The levy amount should at least be appropriate to a likely deficit,” Churchill said. He added: “The Pension Protection Fund will be doing modelling and forecasting to justify the money spent.”

The levy should be “relatively stable” over the cycle, Churchill said. He added: “RBL as soon as possible, as much as possible. We will trade off sophistication for speed of implementation,” but said some employers and consultants had questioned this approach.

Churchill also said he hoped the PPF, which is due to start in April, would lead to risk management and early warning systems but also to “strong funding standards”.

“We are an organisation which does not want customers,” Churchill commented - saying the PPF would rather invest in encouraging pension funds to set up their own strong standards.

“I would expect that as a natural evolution,” he said.

Churchill stressed the state of DB schemes was sound, arguing that less than one per cent of them risk failure.

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