The Pension Protection Fund (PPF) announced that the pension protection levy estimate for 2013/14 will be £630m.

This is the same aggregate amount that the PPF now expects to be collected for the 2012/13 levy year, some £80m more that the original estimate of £550m.

PPF chief executive, Alan Rubenstein, said: "We have seen pension scheme funding deteriorate significantly in the last eighteen months. We have seen that reflected in claims in the current year, which already exceed our annual levy.

"Therefore, it should come as no surprise that this level of heightened risk would ordinarily result in a substantial increase in the levy estimate, up to the maximum permitted, particularly as our levy framework is designed specifically to respond to changes in risk of this nature.

"However, we are realistic and have listened. We know that many employers are still struggling in the continuing economic turmoil. That is why, exceptionally, we have set a levy estimate that means schemes will typically see levies at similar levels in 2013/14 as they will for this year.

He added that, during the current year, there was a fall in the number of certified deficit reduction contributions (DRCs) and contingent assets – which schemes use to reduce their risk and therefore their levy bills. This reflects the further increase in risk which means that the PPF expects to collect about 15% more for the 2012/13 levy year than its original £550m estimate.

Rubenstein warned that levy increases in future were inevitable if the current high risk conditions persisted. He said "People should bear in mind that, if our protection regime in the UK is to be credible, then it needs to be funded. The alternative, an inadequately resourced PPF, would fail to offer the security that pension scheme members deserve, and would strengthen the hand of those who argue for more radical measures to deal with risk such as the imposition of insurance style solvency requirements for pension schemes."

Acknowledging this as a one-off move by the PPF in light of the UK's difficult economic position, John Cridland, CBI director-general, said: "Businesses will welcome the PPF board's decision to take account of the wider economy in setting the levy estimate for 2013/4, in line with the CBI's request. [They have] made the right decision.

"Limiting the rise in the levy estimate to 15%, rather than the 25% that had been anticipated, means that the PPF will plan to collect the same amount in 2013/14 as it ended up collecting this year, due to market movements. This move will relieve some of the financial pressure felt by many businesses with defined benefit schemes.

Joanne Segars, chief executive of the National Association of Pension Funds (NAPF) also welcomed the decision and called the decision to keep a lit on the increase in levy "realistic". She said: "These are difficult times for companies running final salary pension schemes with low interest rates piling significant pressure on already stretched scheme deficits.

"We welcome the PPF's pragmatic decision to limit any increase in the levy to no more than it is collecting this year. While any increase at the current difficult time is unwelcome, it does reflect that the risks to the PPF have increased. The rise would have been more had it not been for the PPF's approach."

Segars continued to say that the restrictions showed that the PPF "strikes a balance between protecting schemes from major extra costs and ensuring the PPF's finances are strong and sustainable." Adding that she thought it also recognises that schemes are facing extra pressures as a result of low gilt yields and quantitative easing.

The PPF published alongside its announcement a consultation document on its 2013/14 pension protection levy determination. In order to provide predictability, the intention is that the New Levy Formula will remain broadly unchanged until the next three yearly review. The results of the consultation will be announced in December, alongside a final confirmation of the levy estimate.



First published 25.09.2012

azeevalkink@wilmington.co.uk