Contingent assets, such as parent group guarantees, will be taken into account by the Pension Protection Fund when calculating a company's risk based levy.
In its final proposals for the 2006/07 pension protection levy, the PPF has set out details of how it will recognise contingent assets, such as parental guarantees and letters of credit from third parties, which should help reduce a company’s levy, although a total of £575m is needed from company pension schemes to fulfil the funding requirements.
The industry now has just over a month to respond to the details of the contingent asset proposals, with responses requested by January 23.
Other key elements of the proposals, which have taken into account industry responses from the July consultation, include the levy to be capped at 0.5% of a scheme’s PPF liabilities, which should benefit weaker schemes. Special contributions paid into the scheme to reduce deficits, after the effective date of the last actuarial valuation, will also be taken into consideration.
Companies which are funded over 125% on a PPF basis will not pay a risk-based levy, and insolvency risk bands will be increased from 10 to 100, in order to increase precision. The proposals also suggest schemes will not have to conduct out-of-cycle valuations.
The Board of the PPF has also published its levy estimate for 2006/07, which is £575m, but they point out that action taken by companies over the next few months to lower their risk is expected to reduce the actual amount collected.
Lawrence Churchill, chairman of the PPF Board, says: “Our proposals strike the right balance between security for pension scheme members and cost to the levy payer. They demonstrate our commitment to listen to and work with industry to develop a levy that is fair, simple and proportionate. We believe that this vital protection could not be provided at a lower cost.”
He adds by finalising the proposals it provides the clarity and certainty businesses have been asking for. Schemes and their sponsoring employers now have the information they need to reduce their risk and benefit from a lower risk-based levy than if they take no action.
The National Association of Pension Funds has welcomed the proposals, stating the PPF has worked to engage with the industry and respond positively to concerns.
Christine Farnish, chief executive of NAPF, says: "Today's announcement includes welcome developments on such critical issues as contingent assets, deficit contributions, risk bands and the levy cap. The NAPF has not been alone in raising concerns in these and other areas, and I am pleased the PPF has listened. This latest move demonstrates their determination to make this system work."
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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