UK - The UK Pension Protection Fund (PPF) has unveiled further details of its new levy, first announced at the beginning of the year.

The lifeboat fund said it was a "significant milestone" toward a levy that was viable in the long term.

The levy will see 10 insolvency ratings bands introduced, rather than the originally proposed six, but a significant reduction on the 100 currently in place.

The increase over initial proposals was meant to allay concerns of pension funds on the edge of one band being exposed to significantly higher levy costs, it noted.

The PPF said there was "overwhelming" support for its proposals to fix levy parameters, with the only variable to influence the levy bill being a scheme's risk exposure.

However, it also warned: "A significant fall may mean we have to raise levies in the future to make sure we continue to meet our commitment to members, and keep our target of being financially self-sufficient by 2030 on track."

Joanne Segars, chief executive of the National Association of Pension Funds and member of the steering group that helped form the new policy, said linking levy payments to overall health was a "step in the right direction".

"The approach the PPF has adopted will provide greater certainty and predictability for schemes," she said. "And it is right that the levy be reduced where a scheme takes positive steps to reduce its risk to the PPF."

Others warned that schemes would now have to monitor their Dunn & Bradstreet (D&B) risk score more closely, due to the reduction in overall bands.

Nick Griggs, partner at Barnett Waddingham, also welcomed the additional investment classes now taken into account and said this would allow the levy to better reflect a range of investment strategies employed.

He added of the scaling down in D&B bands: "This should ensure greater stability from year to year for most schemes, although some will still see significant jumps.

"Schemes will wish to monitor their D&B failure score very carefully as a change in band could result in a big jump in the levy."

The Confederation of British Industry, the UK's business lobbying group, was more welcoming of the reforms, with principal policy adviser Jim Bligh noting that the lifeboat fund had listened to companies' requests for a more stable levy.

"The PPF's initial proposal oversimplified companies' risk profiles, so it is good it has adopted a more realistic assessment of firms' insolvency risk, which better reflects the reality of whether or not their scheme might end up in the lifeboat fund," he said.

Topics