The Pension Protection Fund's decision to almost double the levy estimate for 2007/08 will affect around 5% of schemes, claims Entegria.
Part of the Xafinity group, Entegria, a consulting and administration service, says the announcement that the PPF is to charge schemes £675m instead of the expected £300 -320m, is bad but not unexpected news, as it is the sort of increase the pensions industry had expected.
Pat Wynne, director of Entegria, says this time last year the PPF estimated a levy of £575m based on market conditions, but as the final levy took into account developments up to 31 March 2006, he says market gains and employers making efforts to improve their Dun & Bradstreet failure scores through better business procedures, meant the actual levy being collected almost halved.
As a result he says the increased estimate, which is under consultation by the PPF until 2 February, is partly to “claw back” the shortfall from last year and to avoid a similar thing happening in 2007.
However Wynne says the schemes which will be impacted most by the rise, and who will suffer the highest increases, will be schemes with the greatest levels of underfunding and those schemes backed by weak employers.
He says this is because of the proposed increase in the risk based levy cap which will move from 0.5% to 1.25% of PPF liabilities, with Wynne pointing out the 150% increase is expected to hit around 5% of schemes.
Wynne adds: “There will be a greater financial incentive to improve scheme funding but whether this will actually flow through into improved funding among the weakest 5% is, given their position, highly questionable!”
Although Entegria does point there is some good news for schemes to come out of the PPF’s recent announcement, as the organisation has confirmed it is in discussions with Dun & Bradstreet, who calculate the risk scores for companies which determine 80% of the PPF levy, to look at reducing the impact of outstanding County Court Judgements when calculating scores.
Wynne adds: “This proved a major problem last time round, with otherwise strong employers being significantly penalised by virtue of a number of outstanding, but relatively trivial CCJs.”
Meanwhile Partha Dasgupta, chief executive of the PPF, says last year it collected less money than it had originally anticipated because of market movements, improvements in the quality of data, and direct action by schemes to reduce their risk.
He adds: “Going forward we will need to collect a levy nearer our original estimate. Now that more detailed information on schemes is available, we have decided a 1.25% cap on how much an individual scheme pays in risk based levy strikes the right balance between continuing to protect weaker schemes and not penalising stronger schemes which subsidise them.”
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