Government proposals to charge employers a risk-based fee when introducing the Pension Protection Fund could open loopholes for weaker companies who want to avoid the extra levy, according to industry experts.
The Pensions Bill published today by the DWP, suggests employers with high-risk schemes will have to pay a higher levy, which will be linked to risk factors, such as levels of under-funding, credit ratings and investment strategies, if they want to get the benefits of the proposed Pension Protection Fund (PPF).
While the risk-based levy has been created to safeguard 'healthy' schemes from paying to much into the PPF, Friends Provident pensions technical manager Chris Bellers warns the proposal could open up "all sorts of ways" for employer to avoid paying the risk levy.
Employers with high-risk schemes could, for example, 'reshuffle money around' to make the company look like a lower risk one, which might be unfair to more financially sound employers, says Bellers.
The government hopes to introduce the PPF by next year. However, risk-based levies won't apply until the year after, so a phase-in option is being offered for employers who want to sign up while levies are lower.
Stewart Ritchie, pensions development director at Scottish Equitable, says delay to the introduction of the risk-based portion of the levy will start the PPF from a much weaker funding position.
"The phased introduction of the risk based element of the levy could [also] work as an option against the PPF with well funded schemes rushing to move to this basis and weaker companies delaying as long as possible," says Ritchie.IFAonline
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