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PPF to include scheme investment risk in levy calculation

The Pension Protection Fund has confirmed details of a new levy framework, with the investment risk of a scheme’s portfolio set to be incorporated for the first time.

The PPF says the new levy calculation, which will take effect from 2012/13, aims to “reflect more closely” the risk different investment strategies pose to the lifeboat fund.

The charging regime will be fixed for three years to allow pension schemes to plan for their levy with greater certainty. This means that changes in an individual scheme’s levy should only occur if its risk characteristics change.

The PPF is also proposes “smoothing” its measure of scheme funding to avoid sharp spikes in levy payments when stock markets fluctuate.

Finally, the PPF will introduce 10 insolvency ratings bands – 4 more than was previously proposed – amid concerns over “cliff edges” where schemes could face large levy hikes. These bands are used to assess the probability of a scheme becoming insolvent over a year.

PPF chief executive Alan Rubenstein says: “This marks a significant milestone on our journey to construct a levy which is fit for purpose in the long-term.

“We are now embarking on the second leg of our journey – making sure the framework is implemented successfully.”

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  1. One hopes that when the FSA finally get around to a review of the FSCS funding they will learn from the manner in which the PPF are acting.

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