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UK Pension Protection Fund proposes new levy formula

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  • UK Pension Protection Fund proposes new levy formula

UK - The UK Pension Protection Fund (PPF) has proposed a new formula for calculating the pension protection levy from 2012-13 onwards.
The PPF proposed fixing the levy rules for three years at a time to provide more predictability, although it said this could be reviewed in "exceptional circumstances".
It also recommended the use of average measures for both underfunding and insolvency risk, so any temporary changes in an employer's insolvency risk score or pension scheme's funding position would not affect a scheme's levy bill disproportionately.
The new formula will also focus more on factors in the levy payers' control, "rather than those factors they have little influence over", the PPF said.

Alan Rubenstein, chief executive at the PPF, said: "With these proposals, we aim to have a robust levy that is fit-for-purpose and will be generally accepted by levy payers.

"We consulted widely, both formally and informally, on this issue and worked closely with senior industry figures to make sure we achieve that aim."
Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said the new formula, combined with the recent £120m reduction in next year's levy, showed the PPF was "taking important steps in the right direction".

She said: "The formula will establish a clearer link between a pension scheme's overall health and the amount it has to pay as a levy. Better funding levels and sound investments should mean a lower levy, which is very good news."

Nick Griggs, partner at Barnett Waddingham, added: "In our latest PPF levy survey, 46% of respondents agreed with the statement stability in the PPF levy was more important than the absolute amount they were asked to pay. 

"Therefore, we welcome the proposals to fix the levy formula for three years and to use a form of averaging to assess the underfunding risk."

Consultation on the PPF's proposals will run until 20 December.

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