UK - Companies and pension schemes could lose out financially should the levy for the Pension Protection Fund (PPF) be set for more than one year, Aon Consulting has suggested.

More specifically, Aon believes the downside is PPF payments by a poorly-funded pension scheme would still remain the same over the two or three years in cases their financial position changes for the better shortly after the date for the levy calculation .

The PPF published a consultation paper this week in which it suggested setting 31 March 2008 as the date for calculation in order to maintain a stable, index-linked levy estimate between 2008 and 2011.

"For example, if a company pays £1m (€1.5m) into its pension scheme in April 2008 that then would not have any impact on their levy until two years later," Aon consultants and actuaries Kevin Burgess and Chris Allen explained to IPE.

The 'delay' between changes to a pension scheme and the impact on the levy can currently be around one year, however, should the PPF's proposal be accepted this time span might double.

"Whether or not a company would prefer to have stability or not to have the savings delayed will depend very much on the individual company and what their cash flow and financial positions are like," the Aon team said.

"Companies with schemes that are heavily underfunded and pay a high levy are going to want to have the impact from the saving as soon as possible much rather than have that delayed further," Burgess added.

On the other hand, well-funded schemes hitting financial trouble during the period will continue to pay a low levy, Aon noted.

In their current preparation of the response to the consultation paper, Hewitt said it will  question moving the calculation date.

"The proposed move to assess underfunding and insolvency risk on, and submit data by, 31 March each year, 12 months before the start of the levy year clients may not be able to do anything after that date to influence the amount payable the following year," a spokesman said.

"It remains to be seen whether this may be too high a price to pay for advance knowledge of what the scheme's levy bill will be."

Hewitt also pointed out larger schemes should look carefully into the proposal as it might mean "increases in the levy for large schemes currently seen as strongest".

Aon also voiced concerns regarding the calculation of the 'failure score' on which the levy is based. Under the new proposal, the data used for the calculation might be as much as 2.5 years old as it is taken from the annual accounts of a company.

"The proposals mean that the position at 31 March 2008 will be used to set levies for two years, making it doubly important for companies to do what they can to  improve their position by that time," Aon said in a statement.

Meanwhile, the PPF has also published dates for seminars it will host in September for those who want to learn more about the risk-based element of the Pension Protection Levy.

Seminars will be split into sessions covering subjects such as ways to reduce your levy, the current consultation paper, underfunding and insolvency risk and the future of the levy after 2010.

Seminars will take place in Bristol, Glasgow, London, Leeds and Manchester between September 3 and 11.

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