Edward Banister, solicitor at Wedlake Bell, comments on the new Pension Protection Fund levy

“There’s much to welcome in the PPF’s constructive response to the consultation process, particularly in extending the deadline for taking into account measures to improve scheme funding for the 2009/10 levy year, and the fact that it has resisted any temptation to overhaul the whole system thus giving schemes more time to get used to the way the levy works.”

“While the funding threshold at which schemes pay no risk based levy has been raised, this reflects the fact that defined benefit schemes are generally better funded than they were last year. Schemes may complain that the bar has been raised, but the PPF has a duty to provide protection against long term risk by maintaining sufficient funds, so it is effectively having to run just to stand still.”

“However, these changes to funding thresholds do mean that schemes which currently count Type B and C contingent assets, such as security over the sponsoring company’s property or a bank guarantee, as part of the value of their scheme should urgently review whether they now fall beneath the threshold. For example, those who have only taken security over part of a property and who are only just above the previous 125% threshold may now have to go back to the sponsoring employer and try to renegotiate that charge.”

The level of funding required to pay no risk-based levy has increased from 125% to 140%.

“In addition, the PPF’s new levy proposals make clear the vital importance that schemes which have yet to complete their first s179 valuation do so before the 31 March 2008 statutory deadline. Whereas before they might only have expected a slap on the wrist, now failure to do so could have a dramatic effect on their levy, because the PPF has stated that it will make an assumption that asset values will have declined 5% a year since the last MFR valuation. That’s going to hurt, especially considering that the value of most assets is actually likely to have gone up.”