Pension Protection Fund (PPF) proposals aimed at giving defined benefit (DB) pension schemes greater planning certainty would lead to unfair levies, says First Actuarial.
The actuarial consultancy attributes the danger to out of date information and says the proposals contradict the PPF’s first fairness principle that schemes pay levies reflecting the risk they pose. The consultancy also says the proposals would remove incentives for employers to reduce those risks.
The PPF proposes to bring forward the measurement date of risk factors to 12 months before the start of the levy year from 2009 to 2010. The proposals would address scheme concerns that they cannot calculate their individual bills until after the start of the levy year in question.
Alan Smith, director of First Actuarial, says moving the measurement date forward would bring the insolvency risk calculation for 2009 to 2010 March 2008. Schemes would base their calculations on information from the most recently filed accounts, which could date from the end of 2006.
He says calculating the under funding risk 12 months in advance would also cause a delay in employers seeing any financial benefit from reducing risk through paying extra contributions or putting contingent assets in place.
Smith says: “A reduction in the risk-based levy has until now acted as an effective incentive for employers to improve the security of their scheme.
“The fact that such actions would not, under the current proposals, offer any reduction in the levy for at least 12 months will without doubt reduce the incentive for employers to take those steps, meaning that members’ benefits generally would be less secure.”
The consultancy says setting the insolvency and under funding measurement dates for a levy year at the previous October 31 would enable schemes to use a more up-do-date risk rating and would keep much of the employer incentive in place.
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