Pensions lifeboat cuts levy by 10%

Pensions lifeboat cuts levy by 10%

The Pension Protection Fund (PPF) has confirmed that the levy for defined benefit (DB) pension schemes in 2018 to 2019 will be £550m, 10 per cent less than the previous year.

This compares to a levy estimate of £615m for 2017/18, the pensions lifeboat announced yesterday (19 December), following a consultation launched in September.

This levy is one of the ways that the PPF funds the compensation payable to members of schemes that transfer to the pensions lifeboat.

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It is payable by all UK defined benefit (DB) pension schemes whose members would be eligible for PPF compensation if the scheme employer becomes insolvent, and there aren’t enough assets remaining in the scheme to pay benefits at PPF levels of compensation.

Despite significant risks, the pensions lifeboat is on track to meet its long-term funding target, which means it can set the levy at this level, argued David Taylor, executive director and general counsel at the PPF.

Mr Taylor confirmed that the lifeboat will start taking large sponsoring companies credit ratings into account when deciding the levy rate to charge schemes.

The PPF has also confirmed it will simplify the process for schemes to certify deficit-reduction contributions (DRCs), which are valid contributions paid into the scheme between valuations that have served to improve the funding position.

Mr Taylor said: “I encourage schemes and employers to put in place risk reduction measures in the run up to the reporting deadlines in March and April 2018. We also intend to publish new documentation for contingent asset arrangements in January.

“The new approach for recognising deficit-reduction contributions provides a particular opportunity for schemes to gain more recognition for contributions made and so reduce their levies.”

According to Chris Ramsey, associate at Barnett Waddingham, many schemes will welcome the 10 per cent levy reduction, since it will mean that they will “pay less for the protection afforded by the PPF”.

He said: “However, around 1,000 schemes will see an increase in their levy as a result of the PPF addressing past inequalities in the system, with some of the increases being very significant.

“We are supportive of the actions the PPF has taken to reduce the administrative burden on schemes, and in particular the simplification of the approach to certifying deficit contributions.

“Nevertheless, other aspects of the PPF levy system have become even more complicated and it remains vital that schemes and their sponsoring employers get appropriate advice to ensure they do not end up paying more in levies than is necessary.”