UK - The UK Pension Protection Fund (PPF) could find itself unable to finance a future risk exposure if legislation does not change, according to consultancy firm Mercer.

By law, the PPF has to collect 80% of its levy via the so-called risk-based levy. However, this could jeopardise the future of the fund, says Deborah Cooper, principal at Mercer in London.

The risk-based levy depends on the relationship between assets and liabilities. Currently a fund pays a full percentage of the risk-based levy if its assets are less than its liabilities, explains Cooper.

"Thereafter there are declining percentages, so as you become better funded, you pay a lower amount of risk-based levy," Cooper told IPE.

But if all schemes become well funded, and "unless the legislation is changed," it would result in a situation where nobody paid a risk-based levy, she argues.

Mercer says it welcomed the nearly immediate recognition of contingent assets and deficit contributions as providing a strong incentive for employers to improve members' security and simultaneously reduce the risk to which the PPF is exposed.

However, the consultant stresses: "As average levels of scheme funding improve, the PPF's ability to collect the risk-based levy could become compromised."

Cooper made the comment in response to the news that the PPF planned to revise the timing for measuring the factors that determine the calculation of the risk-based levy.

A spokesman for the PPF commented: "This is a response to our consultation, which we will take it into consideration alongside the other responses that we've had in relation to the consultation that closed yesterday."

He added: "We will publish our findings later on in the year. These may or may not to the include changes which respond to the concerns expressed, but no decisions have been made in terms of what we are going to do."