UK - The Pension Protection Fund (PPF) has confirmed the funding level at which schemes are exempt from the PPF levy will increase from 125% to 140% for the 2008/09 year, despite industry opposition.

In the final version of its 2008/09 levy determination notice - which sets out how the levy is calculated - the PPF revealed the funding level at which schemes pay a reduced risk-based levy will rise from 104% to 120%, as the organisation claimed this "more accurately reflects the long-term risk to the PPF".

Other changes, originally proposed in a consultation in November, include a reduction in the levy cap from 1.25% of liabilities to 1% for 2008/09, which the PPF said will continue to protect the weakest 5% of schemes from "disproportionately high levy bills".

In addition, the PPF confirmed it will change the deadlines at which actions taken by pension schemes to improve their funding positions will be taken into account when calculating individual levy bills.

It will now measure underfunding and insolvency of schemes on March 31 2008 for the 2009-2010 levy, and following industry feedback on the consultation the PPF confirmed contingent assets will be taken into account for 2009-2010 if they are certified by March 31 2009, while deficit reduction contributions will be counted if they are made by that date and certified by 7 April 2009.

The decision to raise the funding level at which schemes pay reduced or no levy follows strong opposition from the industry, as consultants claimed the move "penalised better-funded schemes" with the expectation that some schemes will see their levy payment increase between four and 13 times the original premium.  (See earlier stories: Generous PPF benefits cause 'unfair' levy and Risk-based levy 'could rise fourfold')

However, in a an open letter to stakeholders, Partha Dasgupta, chief executive of the PPF, said despite arguments from larger pension schemes - suggesting the proposals "punished" schemes which had increased their funding levels during the last two years - the organisation had decided it "would not be prudent to change our proposals".

Dasgupta claimed this was "due to the volatility of scheme funding effectively demonstrated by the PPF 7800 Index, the better understanding we now have of the buy-out market and of the contribution to our overall long-term risk made by large schemes".

"Although some respondents suggested that cross-subsidy will increase, we expect it to actually decrease in aggregate by 9% under our new 2008/09 taper," he added.

The PPF also reminded schemes they have until March 31 2008 to submit section 179 valuations, and to re-certify or put in place any contingent asset arrangements, as well as warning all information should be up-to-date as it would not accept any corrections to the scheme data once it is received from The Pensions Regulator.

The levy scaling factor, which is a factor of the levy calculation as it scales the insolvency and underfunding risk for each scheme, will be published in May once all the scheme data has been received.

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