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CBI: Huge PPF levy hike will hit small firms

John Cridland

The Confederation of British Industry has warned an imminent hike of up to 25 per cent in the Pension Protection Fund levy will be a “major problem” for small firms.

A consultation document announcing the £550m levy for 2012/13 said the PPF expects to raise “approximately £550m” in 2013/14 and 2014/15.

However, the CBI says the pensions lifeboat fund is now planning a steep increase in the levy paid by businesses with defined-benefit schemes.

CBI director general John Cridland (pictured) says: “A number of factors lie behind why PPF levies are likely to rise next year, but a 25 per cent rise is simply not sustainable. Such a rise in the levies would be a major problem for many small and medium-sized companies.”

A PPF spokesman says: “We have seen a sharp fall since March 2011 in the yields of 30 year gilts. People should recognise this will have an effect and the levy will go up but not by more than 25 per cent because that is the cap.”

CBI Graph

The CBI is also calling for changes to the way DB liabilities are accounted for on company balance sheets. Currently these liabilities are valued on a “marked-to-market” basis, meaning the figure can be very volatile.

Businesses say the figure should be “smoothed” over a number of years to prevent spikes in company deficits.

Cridland says: “Using spot rate marked-to-market valuations to calculate defined benefit pension liabilities doesn’t make sense, especially given the length of time employers pay into a pension. Introducing smoothing – over a number of years – in the discount rate would better reflect the long-term nature of pensions and allow for countercyclicality.

“Other countries are ahead of us in this, with Denmark, the Netherlands and the US already taking action to spread the value of the return, rather than at a single point in time, and reflect the long-term nature of the scheme.”

The Pensions Regulator chief executive Bill Galvin says: “Higher pension deficits do not necessarily mean increased contributions from employers.

“The funding framework provides considerable flexibility – allowing employers to spread payments over many years, to smooth contributions to take account of affordability, and to use other assets and security.

“We believe it is important to maintain the integrity of the UK funding regime and that we respond to the pressures created by the economic crisis by smoothing the actual payments required of employers rather than by altering the method of measuring the liability.”

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  1. Well chaps you are out of a job but dont worry your pension is safe – oh no it isnt is it as PPF doesnt guarantee the payments and could reduce them if it needs to.

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