UK protection fund: weaker schemes to pay most

UK - Lawrence Churchill, chairman of the new Pension Protection Fund has said that schemes more likely to turn to the PPF for help will contribute the most.

The UK has learnt “a number of valuable lessons” from the experience of the US, Churchill told a conference organised by the Pensions Management Institute.

The PPF is going to place greater importance to the risk-based levy than its US counterpart, he added in a keynote address.

The role of the fund will be paying compensation to members of defined benefit schemes which are underfunded and whose employers are insolvent.

"By paying the right amount of compensation to the right people at the right time, the Pension Protection Fund may improve confidence in defined benefits schemes more generally," he said.

The PPF compensation levels amount to 100% for those over the scheme's pensionable age and 90% for those below pensionable age, with a benefit cap of 25,000 pounds.

The fund will take in the remaining scheme assets of eligible insolvent companies. It will also raise an annual levy on all eligible DB and hybrid schemes and a levy of some 300 million pounds “to be predominantly risk-based and to be set by the board”.

The PPF will also allow for “variable economic performance over the long term”.

Talking about governance, Churchill stressed that the
PPF was a non-departmental public body “at arms length from the government” with power to review the levy on an annual basis.

"Key decisions will be made by a board of executives and non-executive directors with a wide range of skills and experience," he said.

Churchill said confidence and consensus-building, risk management and early warning systems and the emergence of strong funding standards were key to the success of the fund.

The concept of compensation for DB schemes, he also said, had received “overwhelming” support.

The parliamentary process required to establish the
PPF is still ongoing, he pointed out, but the compensation issue was being addressed as a “matter of urgency”.

Among the problems to be tackled in the next year or two are the lack of data and establishing a 'robust' early warning system, balancing opposite views and the implementation of the risk-based levy.

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