Sections

NAPF backs £65m hike in PPF charges for transitional arrangements

Related images

  • Lifeboat

Related Categories

A £65m (€82m) increase in scheme-specific payments should not deter the Pension Protection Fund (PPF) from offering transitional arrangements to schemes hardest hit by its new levy, according to the National Association of Pension Funds (NAPF).

The industry body also said it did not support introducing an override that would allow schemes with sponsors assessed by ratings agencies to use the firm’s creditworthiness in place of the lifeboat fund’s new, tailor-made levy formula, as it would complicate the system.

Responding to a consultation on the new fund levy formula developed by Experian Credit Services, the NAPF said the impact of what the PPF viewed as a “material shift” in the ranking of plan sponsors should be offset by proposed transitional arrangements.

It said that while scheme-based levy income would gradually fall by £20m under the new approach, there would be a redistribution of overall levy costs – covering both risk-based and scheme-specific charges – amounting to £200m across the entirety of the PPF universe.

“The NAPF recognises this redistribution is the result of moving to a more accurate measure of the insolvency risk of PPF employers, and, therefore, it could be argued that ‘losers’ have not been paying their fair share of the levy so far, and vice versa for the ‘winners’,” the response said.

It found that transitional arrangements would see the scheme-based levy rise to nearly 20%, rather than 10%, of total levy income, taking it close to the current limit allowed and resulting in £135m of income stemming from the scheme-specific charges, up from £70m.

The response said the redistribution could have “profound” consequences for a limited number of outlier schemes and that the PPF should engage with those most affected on a case-by-case basis.

Nevertheless, the industry body concluded: “On balance, the NAPF supports the proposed transitional arrangements in the consultation.”

The proposed transitional system would compare a fund’s 2014-15 levy score from the current Dun & Bradstreet system with that of the proposed Experian model, had it been in place for the same period.

The PPF consultation said that, if the increase suffered because the Experian model exceeded 200%, then it would abate the 2015-16 payment.

However, the fund also cautioned that the proposal should not be viewed as a hard, 200% cap, as any further deterioration in risk between the 2014-15 and 2015-16 levy periods would need to be accommodated.

Consultancy Towers Watson raised further concerns with the PPF consultation, questioning whether the bespoke model was fulfilling its potential.

Joanne Shepard, senior consultant at the company, welcomed changes to the way not-for-profit sponsors are assessed, the creation of which will offer a “fairer assessment of the overall risk of this group of employers” according to the NAPF.

Shepard said it was unclear if standalone score cards for other types of sponsors had been considered, which she argued contributed larger sums toward the levy than the charity sector.

“For example, should financial services companies be marked down for not holding any ‘stock’ to sell in future?” she asked. “Does this concept really make sense for their business?”

The consultant also criticised the PPF for proposing restrictions on asset-backed contributions that would see a ban on assets outside of the UK.

“The proposed restriction to UK property is too onerous,” Shepard said, as certain infrastructure or land assets could fall outside the strict definition.

“Overseas property, receivables and in some cases stocks are assets worth considering for asset-backed funding, and the PPF appears to have excluded cash and securities purely because it has not identified any existing structures that use these assets,” she said.

The new levy system, which comes into effect for the three-year levy period to 2017-18, will see the first year’s levy charges based on only six months of a scheme’s activity.

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • IN-2454

    Closing date: 2018-08-01.

Begin Your Search Here