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UK Pension Protection Fund to maintain levy payments at current rate

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UK - The UK Pension Protection Fund (PPF) is to maintain levy payments at its current rate of £630m (€790m), responding to industry concerns that a predicted 25% increase would be unsustainable.

The lifeboat scheme’s chief executive Alan Rubenstein said pension scheme funding had deteriorated “significantly” over the past 18 months, with any increase in levy payments directly linked to the risk-facing funds.

“However, we are realistic and have listened,” Rubenstein said, likely referencing calls from business lobby CBI and Mercer among others to carefully consider any higher payments at the current time.

“We know many employers are still struggling in the continuing economic turmoil,” he added.

“That is why, exceptionally, we have set a levy estimate that means schemes will typically see levies at similar levels in 2013-14 as they will for this year.”

Towers Watson predicted earlier in the summer that, as a result of depressed Gilt yields and higher deficits, the PPF would be forced to increase deficit payments by 25% - the highest amount possible - from its initial 2013-14 estimate of £550m.

However, while Rubenstein said he understood industry concerns, he warned that the only way the country’s protection regime would be successful - and perceived as successful overseas - was if it remained fully funded.

“The alternative, an inadequately resourced PPF, would fail to offer the security that pension scheme members deserve, and would strengthen the hand of those who argue for more radical measures to deal with risk such as the imposition of insurance-style solvency requirements for pension schemes,” he said, referencing European Commission proposals to revise the IORP Directive.

The PPF initially estimated that levy income for the current 2012-13 financial year, as well as next year, would be £550m, but was forced to revise its estimate upwards to £630m for 2012-13.

National Association of Pension Funds chief executive Joanne Segars welcomed the plans to only increase levy payments by 15% over initial estimates, saying it was as “pragmatic decision”.

“The PPF’s decision to keep a lid on the increase in the levy is realistic,” she said.

“It strikes a balance between protecting schemes from major extra costs and ensuring the PPF’s finances are strong and sustainable. It also recognises that schemes are facing extra pressures as a result of low Gilt yields and quantitative easing.”

CBI director general John Cridland also welcomed the announcement.

“This move will relieve some of the financial pressure felt by many businesses with defined benefit schemes,” he said.

“We acknowledge that this is a one-off move by the board in light of the UK’s difficult economic position.”

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