PPF announces 2008-2009 levy scaling factor

The Pension Protection Fund (PPF) today (Friday) announced the scaling factor which enables eligible UK pension schemes work out their pension protection levies for 2008-2009.

This figure has been set at 3.77 and was calculated using data supplied by pension schemes by 31st March on their employers, funding levels and the direct action they have taken to reduce their risk.

The scaling factor is a crucial element of levy calculations as it enables the PPF to distribute the levy proportionately among eligible schemes.

But, the scaling factor on its own does not determine the size of individual levy bills. Any change in a scheme’s risk between 2007-2008 and 2008-2009 will also have an impact on the size of its bill.

PPF Chief Executive, Partha Dasgupta, said: “When working out this year’s scaling factor, we had to take account of the significant volatility we have seen in scheme risk during the last 12 months – and make sure that we still collect the £675 million we said we need to collect.

“In the short-term, we have seen scheme funding and insolvency probabilities improve. But, it is long-term risk that we have to protect ourselves against, particularly as we are now in the middle of a credit crunch which can only mean a lot more uncertainty for the future.“

In setting the scaling factor, the PPF first calculates each scheme’s individual levy, save for the scaling factor. It then compares the total of all individual scheme’s levies with what it needs to collect, ie £675 million for 2008-2009, and scales the total figure accordingly.

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Notes to editors

1. Important facts and figures which set today’s announcement into full context are available with the website version of this press release - http://www.pensionprotectionfund.org.uk/news-details.htm?id=6597

2. A set of FAQs on the levy structure and scaling factor has also been added to the Levy FAQs page - http://www.pensionprotectionfund.org.uk/index/pension_protection_levy-2/levy_faqs.htm

3. The scheme-based levy multiplier performs a similar function in respect of the amount of scheme-based levy collected and has been set at 0.000165 for 2008-2009.

3.The £675 million levy estimate was set to cover expected claims and help reduce the PPF’s own deficit. The PPF announced in 2007-2008 that it would be aiming to collect £675 million for the next three financial years, although index-linked to earnings and subject to their being no significant change in risk.

4.The risk-based levy is a pioneering model which enables the PPF to protect occupational scheme members against financial disaster should their pension scheme collapse. Schemes which are more than 140 per cent funded, on a Pension Protection Fund basis, are exempt from the risk based levy. The amount of risk-based levy is capped at 1.00% of liabilities for 2008-2009 to protect the weakest schemes.

5.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: Richard Hunt on 0208 633 5931/0789 425 5561 or Ana Moreno on 020 8633 4932/ 07961 957 480.