UK – The Pension Protection Fund has admitted that the total amount to be levied on schemes will be “somewhat higher” than the £300m (€435m) originally estimated.
“With lower interest rates at present, and an assumption of greater longevity, it is likely that the board’s own estimate will be somewhat higher than the figure in the regulatory impact assessment,” the PPF said in a statement announcing a consultation on the risk-based levy.
The original figure of £300m was based on data as at December 2003, said Partha Dasgupta, the PPF’s director of investment and finance.
“The financial and demographic variables have changed,” he told IPE.
He declined to put a figure on the new total levy and said the PFP would model the estimate over the next few months and release the new estimate by the end of November.
Bearing in mind concerns about the cost of the levy, the PPF will cap the amount payable, probably to around 3% of PPF liabilities, he said.
“The board is aware that concerns have been expressed about the potential financial impact that the pension protection levy may have on schemes and their sponsoring employers,” the PPF said in a statement.
Dasgupta also said that the PPF has deferred including asset allocation risk “until a later date”. There would be a separate consultation on this matter.
He added the PPF is tendering for measuring the insolvency risk of scheme sponsors. This was at an advanced stage. It is understood that names in the frame for this contract include Standard & Poor’s, Moody’s and Dun and Bradstreet.
The Confederation of British Industry called the proposals the “right approach”. Deputy director general John Cridland said: “The principle that businesses representing the highest risk should be asked to pay more has to be right - it would have been unfair for strong companies with well-funded pension schemes to subsidise others.
“The PPF has put forward a levy structure that can work, and the promise to introduce risk-based charging quickly shows they have listened to businesses' concerns."