UK – The new Pension Protection Fund will use a risk-based levy “as quickly as possible and as risk-based as possible” says PPF chairman Lawrence Churchill.
The PPF was created by the Pensions Act 2004 to compensate members of under-funded defined benefits schemes when their sponsors go bankrupt.
Churchill told a news conference that the PPF would use an initial levy based on the number and status of scheme members. This year, it is expected to raise £150m (€218m).
The money raised will help towards compensation for members of the under-funded schemes. Compensation levels are 100% for those over the scheme's pension age and 90% for those below pension age, with a benefit cap of £25,000 at 65.
In the future the levy will be based on a combination of risk-based factors. The transition between the two kinds of levies could last up to five years, but Churchill said a consultation had suggested the time scale should be curtailed in favour of a speedy application of the risk-based levy.
The consultation itself will be available by late spring, possibly within two months, he said.
“We have learnt the importance of the risk-based levy, to put it_on as quickly as possible and as risk-based-levy as possible,” he said, stressing that contrary to its US counterpart, the Pension Benefit Guaranty Corp., the PPF would be independent of the government.
The PPF will also invest the assets under its protection, but Churchill declined to give an asset allocation estimate because he said it all depended on the nature of the scheme. The assets of a mature scheme are going to be invested through a “liability-led approach”.
For younger schemes “we would like to have the opportunity to invest in asset classes with better returns in the long term”.
David Norgrove, chairman of the Pension Regulator, warned against pension funds mirroring the choices of the PPF. “People will have to look at their own liabilities not at those of the PPF.”
He said the PPF and the Pension Regulator would be "inter-dependent”. He said the regulator, which will take over from the Occupational Pensions Regulatory Authority and is also to be financed through a levy, was going to be “an active and authoritative presence” in the pension industry.
It will require better management and high standard of information of pension schemes and will have powers “to put schemes problems right”.
“We will give pension schemes the status of the powerful creditors that they are,” he said, adding however that it would not unnecessarily interfere with corporate matters. “We will use of powers effectively, but sparingly,” he said.