Of interest to all schemes providing defined benefits is the DWP’s consultation on various options for setting the portion of the Pension Protection Fund (PPF) levy relating to day-to-day scheme administration for 2015/16 onwards. The consultation on the draft Occupational Pension Schemes (Levies) (Amendment) Regulations 2015 runs until 9 January 2015.
This part of the levy funds the PPF’s administration costs, is paid by eligible schemes, and is calculated according to the number of scheme members.
The DWP’s estimate is that by the end of the 2014/15 levy year, there will be a £5.1 million shortfall in the amount of the levy collected as against the PPF's administration costs, although it estimates the deficit will reduce in later years due to the new Experian levy risk scoring system. The consultation document sets out four possible alternatives to address this issue:
- No change. This would lead to an increase in the costs/levy deficit. Unsurprisingly, the DWP is "not attracted" to this option;
- Immediate increase by 72 per cent – although this option would eliminate the funding gap immediately, the DWP acknowledges that schemes would have no time to prepare for such a change. It does not propose to follow this option;
- Eliminate the deficit by 31 March 2020 - rates would increase by 43 per cent which would eliminate the deficit over the five year levy period from 2015/16 to 2019/20; or
- Eliminate the deficit by 31 March 2022 - the levy rate would increase by 15 per cent in 2015/16, with identical increases in 2016/17 and 2017/18. This is the Government's preferred approach.
The DWP is seeking comments on the proposals, particularly on the suitability of the fourth option.