The pension protection levy, paid by work-based pension schemes to help protect their members, could be set for three levy years between 2008 and 2011.
This is if plans contained in a consultation launched today by the Pension Protection Fund (PPF) are approved. The move comes in response to levy payers who have called for greater stability in both the levy estimate and their individual levy bills and for more advance notice of what their bills might be.
To achieve this, the PPF proposes maintaining a stable levy estimate, index-linked, for the next three levy years, subject to there being no significant change in long term risk. Dates when insolvency and underfunding risk are calculated, and all data is collected, will be brought forward 12 months to March 31 2008 in relation to the 2009/10 levy year.
The consultation, which ends on Wednesday 3 October, also confirms that Dun & Bradstreet (D&B) will continue as PPF insolvency risk provider for a further two years. It will also seek views on the tender process for an insolvency risk provider from 2010 and how the levy will evolve, emphasising a move away from short-term to long-term risk measures to calculate the levy.
PPF chief executive, Partha Dasgupta, says: “We listen carefully to levy payers and we believe this proposal is a positive response to what they have been saying. As well as achieving stability in levy setting, it provides good advance notice of likely bills and enables us to set a levy which is fair and proportionate but still protects the interests of those receiving PPF compensation.
“We are also seeking to improve the fit between setting the levy estimate and, importantly, individual bills to the work we are doing to determine long-term risk, as part of our Long Term Risk Model. We are now keen to hear what people think about how the levy can develop in the decades to come.”
Copies of the document, ‘The consultation on the development of the pension protection levy – August 2007’, can be found in the publications section of the PPF website at www.pensionprotectionfund.org.uk.
The PPF will be holding a series of regional seminars during September aimed at seeking feedback on its proposals from all interested stakeholders. Details of these seminars are also on the website.
The first pension protection levy was charged in 2006/07. It is made up of two parts: a scheme based levy and a levy based on the risk posed by an eligible scheme to the PPF.
The PPF was set up under the provisions of the Pensions Act 2004 in April 2005 and is classified as a public financial corporation. It was established to pay compensation to members of eligible defined benefit and hybrid pension schemes when there has been a qualifying insolvency event in relation to the employer, and where there are insufficient assets in the pension scheme to cover PPF levels of compensation.
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"The alignment of failure rate assumptions in individual PPF levy assessments with similar assumptions in the PPF Long Term Risk Model that tend to be measured over a longer period of time is undoubtedly a step in the right direction. However, stability and predictability of individual levy assessments is desirable, but not at the expense of reducing the ability of sponsors and schemes to manage this process on an acceptable time scale.
"The proposals are likely to be considered retrograde by many scheme sponsors. For example, locking in deficit levels and credit ratings so far ahead - up to 18 months - is unlikely to be in the interests of any but a small number of companies. If companies do not receive the benefit of additional funding or contingent assets promptly, they may be disincentivised from making them available at all.
"Greater consultation on the criteria for appointing a new or additional provider of credit information is to be welcomed, but one of the most significant proposed criteria, transparency, was supposed to have been important last time and was singularly ignored. Sufficient detail on the local skills, models and methodologies of credit information providers must be available to give confidence to those scored or rated."
John Hawkins is principal at Mercer.IFAonline
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