The PPF recently announced changes to the way it will calculate the risk-based element of the pension protection levy for the 2008/09 to 2010/11 levy years. Whilst the total amount that the PPF is seeking to raise via the levy should remain constant at £675 million, the way in which the PPF assesses a scheme’s ability to pay the levy is set to change. The three main changes are:

  • the raising of the upper thresholds, so that schemes which reach 120% funding or higher will pay a reduced levy, and those schemes at 140% funding or higher will pay no levy at all (those figures up from 104% and 125% respectively) 
  • a reduction in the levy cap from 1.25% to 1% of liabilities, and 
  • a concession relating to the timing of submission of deficit reduction contribution forms and contingent asset forms, to enable the PPF to take account of more recent actions taken by employers to improve the funding position of their schemes.

The new measures follow an eight-week consultation with the pensions industry, and the PPF claims the measures will spread the levy more fairly amongst eligible schemes, whilst at the same time reflecting the long-term risks individual schemes pose to the PPF.

The PPF claims that the weakest 5 per cent of schemes will still receive protection from disproportionately high levy bills. It also says that there are still sufficient incentives for schemes to improve the funding of their schemes, despite raising the tapering limits referred to above.

Whilst the greater certainty over the levy total has been welcomed, the wider implications of these changes are yet to be seen. In particular, it has been estimated that some well-funded schemes could see their levy bill increase significantly, whereas the less well-funded schemes could be better off under the new regime.

For further details go to  www.pensionprotectionfund.org.uk/index/pension_protection_levy-2.htm.