UK – Today’s Pension Protection Fund levy proposals have received a mixed response – ranging from a broad welcome to those who found it “simply unacceptable”.


Watson Wyatt pointed out that the levy would cost £160 per employee member. And he pointed out the PPF was falling into the trap of thinking that the cost of the PPF is determined by the levy – “whereas every actuary knows the cost will be determined by the benefits. If the cost is held down relative to the benefits now, it will rise later, or the benefits will have to be cut”.

“No-one should be under the illusion that the risk-based levy eliminates all cross-subsidies from schemes with strong employers to weaker schemes. Cross subsidies that might be acceptable with a modest levy become less so as the levy rises.”

Punter Southall took issue with the decision to create 100 insolvency bands, saying it “could simply be introducing spurious accuracy unless concerns about the methodology used by Dun & Bradstreet in assessing failure scores for the levy are allayed”. It called D&B’s method “complex and secret”.

PricewaterhouseCoopers warned that companies had to move quickly to take advantage of the new guidance to reduce their levy. It pointed out that the levy determination would be based on data in effect on (and information provided to them by) 31 March 2006.

AON said the consulting process was a “pleasant change”. It said: “The PPF Board have clearly listened to the pensions industry and made huge efforts to meet the various challenges that the PPF faces. While not perfect, we believe that the current proposals are a significant step forward.”

But it still thought the level of protection provided by the PPF was “excessive”. The cap at 0.5% of liabilities was a “significant concession”.

Lane Clark & Peacock complained that the levy was “twice as much as parliament was lead to believe would be required, but perhaps only half of what may actually be needed. Where will the other half come from?”

Industry bodies

The National Association of Pension Funds said: “Today’s announcement includes welcome developments on such critical issues as contingent assets, deficit contributions, risk bands and the levy cap. The NAPF has not been alone in raising concerns in these and other areas, and I am pleased the PPF has listened. This latest move demonstrates their determination to make this system work.”

The NAPF added that the £575m estimate “should enable schemes to start their planning and, in particular, help identify whether putting in place arrangements such as a guarantee from an overseas parent are worth pursuing”.

The Confederation of British Industry said the government must take action to limit the PPF’s cost to companies.

It said: "The lid has finally been lifted on how much the PPF is going to cost - and at over half a billion pounds it is nearly double the amount the Government had stated. At this kind of level the cost of the levy is simply unacceptable to firms, despite today's welcome moves.”