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Pension Protection Fund limits levy hike to 15 per cent

John Cridland

The Pension Protection Fund has decided to limit next year’s levy increase to 15 per cent after concerns were raised about the impact a larger hike would have on struggling small businesses.

In July, the Confederation of British Industry warned plans to increase the levy sponsors of defined-benefit pension have to pay to the lifeboat fund by up to 25 per cent would be a “major problem” for small firms.

The PPF has today confirmed the levy for 2013/14 will be £630m – the same as it expects to collect in 2012/13. This year’s estimate has been revised up by 15 per cent from the original figure of £550m as pension funding levels have slumped during the year.

PPF chief executive Alan Rubenstein says: “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.”

CBI director general John Cridland (pictured) says: “Limiting the rise in the levy estimate to 15 per cent, rather than the 25 per cent that had been anticipated, means 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. We acknowledge that this is a one-off move by the board in light of the UK’s difficult economic position.”

National Association of Pension Funds chief executive Joanne Segars says:“These are difficult times for companies running final salary pension schemes with low interest rates piling significant pressure on already stretched scheme deficits.

“The PPF’s decision to keep a lid on the increase in the levy is realistic. It strikes a balance between protecting schemes from major extra costs and ensuring the PPF’s finances are strong and sustainable. It also recognises that schemes are facing extra pressures as a result of low gilt yields and quantitative easing.”

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  1. Pity the FSA doesnt take this sensible approach but instead see IFA’s as a cash cow.

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