PPF signposts long-term levy proposals
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Friday, 10, Oct 2008 12:00
The principles which will underpin proposals for the long-term future of the pension protection levy were set out yesterday (Thursday) 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
- 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.”
ends
Notes to editor
1. Copies of Martin Clarke’s presentation to the NAPF is available on the PPF website - http://www.pensionprotectionfund.org.uk/index/press-office/future_speaking_engagements_and_presentations.htm
2. The PPF splits the levy that schemes have to pay into two parts. First the scheme based levy – this represents 20 per cent of what schemes have to pay - is calculated on the amount they would have to reduce their liabilities to in order to pay out PPF levels of compensation to their members. The risk-based levy represents 80 per cent of what schemes have to pay. This is calculated by working out how much a scheme is underfunded, taking into account actions by employers to reduce their risk through deficit reduction contributions, how much the employers is at risk of going bust, and what contingent assets such as bank guarantees and property have been put in place by the scheme.
3. The Pension Protection Fund was set up under the provisions of the Pensions Act 2004 in April 2005 and is classified as a public financial corporation. It has been 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 Pension Protection Fund levels of compensation.
For further press information contact: Ana Moreno on 020 8633 4932/ 07961 957 480 or Richard Hunt on 020 8633 5931/0789 425 5561.
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