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PPF costs to grow over 300m

The cost of the Pension Protection Fund will be significantly higher than 300m a year after its calculations revealed the UK’s total pension deficit is 134bn.

The revised estimate will be announced at the end of November on the same day the Turner Commission is due to report.

The PPF last week unveiled the calculations behind the levy and also revealed it faces a maximum liability of 1tn should all final-salary pension schemes fail at once.

From April 6, 2006, companies are set to pay an 80 per cent risk-based levy, with the remainder being a flat fee based on the number of scheme members.

The PPF says even schemes with a surplus will have to pay a risk-based levy. From December, the PPF is introducing its own liability calculation – the PPF basis – which covers benefit levels, mortality risk and asset allocation. A company’s contributions will be capped at a maximum of 3 per cent of its risk-based levy liabilities.

Millfield head of pensions Graham Duckett says the PPF has to strike a balance so that well-funded schemes are not subsidising weak schemes but the demands on weak schemes are not so high that they tip them over the edge.

Duckett says: “The advent of PPF levies, however much they turn out to cost schemes, will accelerate the trend for employers to review their positions going forward. While past accrual cannot be tampered with, it has now become a damage limitation exercise to minimise the effects of future accrual.”


A missed opportunity

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