UK – Changes to the way benefits of long-serving workers are paid by the Pension Protection Fund (PPF) will see the UK lifeboat fund’s levy increase by nearly £140m (€162m), according to an assessment by the Department for Work & Pensions (DWP).
Currently, benefits are limited to £31,380 per annum regardless of the length of time a member might have paid contributions into a fund entering the PPF.
Under proposals announced late last month, members who contributed more than 20 years will now see a 3% increase in the benefit cap for each year in a change that will affect only 160 of the lifeboat scheme’s members.
According to a DWP impact assessment (IA), it estimated that the members would increase PPF liabilities by £37.7m, while a further £32.3m increase would be incurred from defined benefit schemes currently in their assessment period.
“In addition,” the assessment added, “it is expected there will be future claims on the PPF from schemes with potentially capped members not currently in the PPF or undergoing assessment to enter it.
“It is assumed these will also give rise to the same 0.39% increase in liabilities in future years, as that resulting from current capped members.”
Estimating that, based on the levy’s present value, the increase would be worth £138.7m by 2030, it added: “The combined impact of claims by existing capped members, potentially capped members of schemes currently undergoing assessment to enter the PPF and expected future capped members give rise to an expected increase in the PPF levy of 3.9% for the period to 2030, all other factors remaining unchanged.”
The DWP said it had, for the purposes of the impact assessment, assumed that all associated costs would be passed on to the levy payer.
“However, there is considerable uncertainty over this,” it said.
The assessment later added that some of the costs of the changed cap could be borne by the PPF if investment returns were to improve or the number of company insolvencies fall between now and 2030.
“The estimated costs and benefits in the IA are very sensitive both to the current level of DB scheme funding and the assumptions detailed in the IA,” it concluded.
“However, the IA does not include a range of estimates to illustrate the scale of this uncertainty because to do so would require additional, highly uncertain assumptions – thus adding in further layers of uncertainty.”