New UK protection fund and regulator launch
UK – The UK has two new pension bodies as of today, the Pension Protection Fund and the Pensions Regulator - both instituted by the Pensions Act 2004.
They have been set up to monitor pension funds and compensate members of under-funded schemes whose sponsors go bankrupt.
Located in Croydon, south of London, the PPF will be funded with a £20 (€29.1) flat-rate levy on employers. This year, it is expected to raise £150m.
The money will help towards compensation for members of the under-funded schemes: 100% for those over the scheme's pension age and 90% for those below pension age, with a benefit cap of £25,000 at 65.
A risk-based levy, reflecting the pension scheme’s likelihood to need the PPF’s help, will be introduced later.
Lawrence Churchill, chairman of the PPF, said last month that the PPF would use an initial levy based on the number and status of scheme members. In the future the levy will be based on a combination of risk-based factors.
Churchill said today: "2005 is going to be a challenging year. I am confident that through working in partnership with industry, trustees and the Pensions Regulator we will rise to the challenge."
“Businesses at most risk and most likely to call on the PPF, should pay more,” said Digby Jones, head of the Confederation of British Industry. “The fund could be in trouble if a proper risk-based approach is not swiftly implemented. Business must not face an ever increasing cost burden.”
Ray Young, chief executive of financial planning and wealth management company, 3Q Solutions, also called for a quick introduction of a risk-based levy to avoid a switch to defined contribution arrangements. "The levy will have to be controlled.”
But Young added that the moves as well as the new Financial Assistance Scheme to compensate workers of wound-up schemes, would restore confidence.
The Pensions Regulator, based in London and chaired by David Norgrove, also starts today. It replaces the Occupational Pensions Regulatory Authority, Opra, which will cease to exist. It is also to be financed through a levy and will have wider powers than Opra.
“The move to a more proactive regulator is a positive development. But it remains to be seen how the new powers will work in practice”, the CBI’s Jones commented.