UK - Pension schemes with funding levels of more than 75% have just three months to reduce the impact of proposed changes to the Pension Protection Fund levy, Mercer has warned.

The PPF announced in November it intended to make the structure of the 2008/09 and 2009/10 risk-based levy "fairer" by increasing the funding level at which schemes are exempt from the payment to 140%.

As a result, Mercer warned, schemes with PPF funding levels of more than 75% can expect to pay a higher levy, although the firm suggested schemes which are funded between 100% and 125% will see the biggest increases.

Pension funds have to submit scheme and company data to the PPF by March 31, but as this information will be used to calculate the levy for the next two years, so Mercer's Levy Watch has highlighted 10 steps schemes could implement over the next three months to try and cut the amount they owe. 

Deborah Cooper, principal at Mercer, revealed the underlying principles of the formula used by the PPF are the same, but some of the parameters in the calculation have changed which means some scheme's levies could be "significantly higher".

"Schemes should do all they can to ensure they pay the right amount. There are many factors to take into account. We can help scheme sponsors monitor their PPF levy and consider levy reduction strategies," she added.

Mercer suggested a key step for schemes would be to work with Dun & Bradstreet to see if there is the possibility to improve the sponsoring employer's UK Failure Score, while improving the scheme's funding with a deficit reduction contribution could help as better-funded schemes will still pay lower levies than less well-funded schemes.

Other possible actions include:

submitting a section 179 valuation; providing a group company guarantee; providing a letter of credit; providing security over company assets; ensuring the information provided in the scheme return is complete, correct and up-to-date, and completing and submitting all forms to the PPF by the deadline.

Although Cooper admitted financial and time considerations could mean some of the options outlined by Mercer, such as reviewing the treatment of orphan liabilities in multi-employer schemes, might not be feasible before the March deadline.

"Some schemes have the potential to make substantial savings. The least that should be done is to estimate the scheme's levy, ensure the appropriate information is submitted on time, and check the levy is consistent with your earlier estimates," added Cooper.

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