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Proposal principles for long-term future of pension protection levy revealed

The principles which will underpin proposals for the long-term future of the pension protection levy have been revealed.

The Pension Protection Fund’s director of financial risk Martin Clarke says that the proposals will continue to recognise the short-term risks that schemes pose to the PPF. This will aim to meet the claims that the PPF expects to face at any one time.

Also, it will add a component to the risk-based element of the levy to reflect a scheme’s contribution to the long-term risk that PPF faces, even from well-funded schemes. This will include taking into account a scheme’s investment strategy and credit risk over time.

The proposals will also provide the potential to reduce the scheme-based element of the levy and offer greater year-on-year stability in individual bills. This will happen because the levy will become less sensitive to short-term changes in insolvency ratings and levels of underfunding.

“We recognise that we need to achieve greater fairness when we calculate the levy. We put forward some of our initial thinking last year. We have now developed that thinking and we will be announcing proposals later in October that will make the levy fairer. It will help provide the stability in individual bills that levy payers are calling for,” Clarke says.

He adds that the PPF wants to hear from all interested parties on what they have to say and urges them to respond to the consultation when it is published.

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