UK - The Pension Protection Fund's announcement that it plans to levy an estimated £675m (€1bn) on pension funds in 2007/8 - more than double the previous levy - has been met with dismay by commentators.

The PPF said the estimate would partially make up for last year's undercollection of levies and help to reduce its deficit.

"Today's announcement accords with the views of many advisors that we should recoup some of the undercollection of last year's levy," said PPF chairman Lawrence Churchill said.

But pension consultants said the move was "most unwelcome" and "wide of the mark".

Chief executive Partha Dasgupta explained: "Last year, we collected less money than we had originally anticipated because of market movements, improvements in the quality of data, direct action by schemes to reduce their risk and as a result of fixing the process for distributing the levy between schemes. Going forward we will need to collect a levy nearer our original estimate."

"The sharp increase in levies is especially concerning given the low rate of corporate insolvency relative to the long-term experience," said Stephen Yeo, senior consultant at Watson Wyatt.

"If insolvency rates rise, or the stock market falls, the levies would presumably increase still further."

Mark Alexander, consultant at Lane Clark & Peacock said: "This levy increase will place another hurdle in the way of cash strapped employers attempting to fill the holes in their pension fund - particularly as the cap on levies for those schemes in the worst position has been increased significantly."
Punter Southall's Stuart Southall said: "Schemes might be forgiven for believing that they are being asked to pay for last year's undercollection by the PPF and for the deficit already anticipated emerging in the PPF's compensation fund.
 
"This is a most unwelcome fiscal imposition for the defined benefit market generally and it could get worse if the queue of schemes in a PPF assessment period continues to grow".
Aon Consulting principal Paul McGlone said: "The greatest impact will be on the worst funded schemes, and the smallest impact being on the best funded schemes."

Mercer Human Resource Consulting partner Paul Greenwood said: "The PPF has recognised that higher levies are needed next year, but the new target is still wide of the mark to secure members' benefits in the longer term."

He added: "Affordability seems to have won the day over complete security for members. Over the longer term, the PPF needs to ensure it has sufficient funds to fulfil its obligations, otherwise it could amass a large deficit."

The Confederation of British Industry's Susan Anderson  said: "Against a background of historically high contributions to company pension schemes, the cost of the PPF is a real concern to business, and the volatility of the levy makes it difficult for companies to plan ahead.

"Many companies are struggling to meet the cost of their liabilities. They need to be reassured that in future the cost of the levy to business will be kept under control."

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