UK – Mercer Human Resource Consulting has called on the Pension Protection Fund (PPF) to request changes to government proposals it says will force companies to incur high administrative costs in 2006.
According to a Mercer statement, companies will be at a substantial disadvantage if the proposals go through. They will also be forced to pay large administration fees to achieve a “fair” PPF levy next year.
“Employers will need to pay for a major actuarial valuation exercise to gain credit for any extra contributions made since the last valuation,” the statement said. “Failure to carry out such a valuation means they will be considered more at risk of claiming on the PPF, so will be charged higher levies.”
Each time a fund contributes towards its deficit it will have to get a new valuation, which will readjust the PPF levy accordingly, explained Mercer spokesperson Tim Keogh.
“This process is very costly,” says Keogh. “It is also an unnecessary volume of work. The process will involve additional administration, actuaries, a new set of accounts and reviews just to be charged the correct levy.”
According to Keogh, approximately £8bn (€11.9bn) a year in extra contributions is being paid into schemes. As a result, many funds would be at a disadvantage if they failed to carry out a valuation by the end of the year.
“If a quarter of schemes opt for a new valuation – which might typically cost around £10,000 – the total cost to the industry would be around £20m,” said the Mercer statement. “But if these valuations were not carried out, the total cost as a result of higher PPF risk-based levies could be as high as £40m.”
Yesterday, Mercer sent a letter to PPF chairman Lawrence Churchill urging him request a change to the administration process. According to Keogh, it has not yet received a formal response.
“However the matter has been referred to in background talks,” he said. “If these proposals are not changed quickly, employers will be forced to pay for an expensive valuation. The burden will fall particularly on those employers that have paid substantial lump sums into their schemes.”
According to Keogh, several other pension schemes are unhappy with these proposals, especially those contributing substantially to their deficit.
“What the authorities seem to be doing is forcing us to incur greater costs rather than rewarding those paying into their deficits,” said Keogh.
The PPF had not responded to IPE’s request for a comment by the time of going to press.