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‘Pension levy breaches fairness principle’

Pension Protection Fund levy proposals will lead to unfair levies and breaches the PPF’s first principle of fairness, says First Actuarial director Alan Smith.

Smith says the proposals will lead to levies that are based on out of date information and will contradict the PPF’s fairness principle that schemes pay levies which reflect the risk they pose.

From 2009/10, the PPF is proposing to bring forward the measurement date of risk factors to 12 months before the start of the levy year in a bid to address concerns that schemes cannot calculate their individual bills until after the start of the levy year in question.

First Actuarial believes that setting the measurement dates for a levy year at the previous October 31 would allow a more up to date risk rating to be used.

But Smith says: “In many cases, the insolvency risk could be based to a significant extent on the financial state of the company nearly three years earlier, contradicting the PPF’s first principle that the levy should reflect the risk posed.

“How many insurers, when they are assessing flood risk for home insurance, ask where a policyholder lived three years ago?

“As it stands, the PPF board have a choice of amending their proposals or abandoning their fairness principle – the two do not sit well together.”

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