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Pension Protection Fund signposts long term levy proposals

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The principles which will underpin proposals for the long-term future of the pension protection levy were set out yesterday in a speech by Pension Protection Fund (PPF) Director of Financial Risk, Martin Clarke.

Speaking at the National Association of Pension Funds' annual conference in Glasgow, he said: "When we first introduced the levy, we tried to make it simple as its implementation represented a major challenge for us, particularly as we had limited information about the risks we were exposed to.

"We now have a far better understanding of those risks – and this has led to a recognition that we need to achieve greater fairness when we calculate the levy.

"We put forward some of our initial thinking last year. We have now developed that thinking and we will be announcing proposals later in October which we believe will make the levy fairer – and help provide the stability in individual bills that levy payers are calling for."

The proposals – which will be subject to a three month consultation to be published later this month – will:

  • continue to recognise the short-term risks that schemes pose to the PPF – this will aim to meet the claims that the PPF expects to face at any one time
  • add a component to the risk–based element of the levy to reflect a scheme's contribution to the long–term risks that PPF faces, even from well-funded schemes &ndash this will include taking into account a scheme's investment strategy and credit risk over time
  • provide the potential to reduce the scheme–based element of the levy, and
  • offer greater year–on–year stability in individual bills – this will happen because the levy will become less sensitive to short–term changes in insolvency ratings and levels of underfunding.

    • Martin Clarke added: "We have received much–welcome expert advice and support in developing these proposals. We now want to hear what all interested parties have to say and urge them to respond to our consultation when it is published."

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    10 October 2008 © Moneyextra.com

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