PPF Levy / Online Scheme Returns

PPF levy – changes to calculation of risk-based levy
At the end of November, the Pension Protection Fund (PPF) announced changes to the way the risk-based levy is calculated.  Despite the PPF press release being entitled "PPF shares levy more fairly across pension schemes", many pension scheme insiders, particularly in well funded schemes, have reacted with concern to changes which they consider very unfair.

The most controversial aspect of the Pension Protection levy – policy 2008-2009 to 2010-2011 is the decision to raise the funding level at which schemes pay no risk-based levy at all from 125 per cent to 140 per cent.  The PPF has also raised the funding limits at which schemes pay a reduced levy from 104 per cent to 120 per cent.

The PPF's Chief Executive has explained that if the PPF had kept the level at 125 per cent, 14 per cent of schemes would be paying no risk based levy, which would, in his opinion, have placed an unfair burden on other schemes.  It also seems that the PPF believes well funded schemes represent a risk to the PPF and have made changes to reflect this concern.

An additional change introduced by the PPF is to reduce the levy cap from 1.25 per cent of liabilities to 1 per cent of liabilities.  The purpose behind this change is apparently to protect the weakest five per cent of schemes from disproportionately high levy bills.

It is not surprising that the changes made by the PPF have been branded unfair by some well funded schemes.  Many such schemes believe the changes penalise strong schemes and favour weaker schemes.  Further accusations being made by industry professionals include that the PPF has "moved the goal posts" given that sponsoring employers who previously increased funding levels to avoid being hit by the risk-based levy may now find that their schemes are nevertheless now subject to the risk-based levy.

Many employers may now be considering the issue of contingent assets as a means of reducing the overall levy.  These can take the form of standard PPF security or parent company guarantees in favour of scheme trustees.  Depending on the level of additional security provided, the levy is reduced.

Online scheme returns
On 11 December, the Pensions Regulator issued a press release announcing that the online web-based scheme return is now live.  The new system should make it easier for schemes to provide the Pensions Regulator with correct and up-to-date scheme information and has a number of useful functions including pre-populating scheme returns with information already held on the register.  The Regulator has indicated that this year, all scheme information must be provided to the Regulator by way of the revised online scheme return system.

It will also be possible, once a completed return has been submitted, for trustees and administrators to amend and update information held by the Regulator at any time during the year.

The PPF Chief Executive has highlighted the importance for schemes of ensuring the information provided to the Regulator is up-to-date and accurate as, in addition to being used to calculate the Pensions Regulator's general administration levy, scheme return data is also used by the PPF to calculate its pension protection levy.

If you wish advice on any legal issues on the PPF levy changes, contingent assets or online scheme returns, please contact one of the following Partners:-

Andrew Holehouse
Louisa Knox
Edwin Mustard

17/12/2007