02
Oct
Blog

The following article appeared in the Daily Telegraph last week and referred to the Pension Protection Fund raising its levy in order to assess and potentially protect private final salary schemes which are in financial trouble. An increase in levy could contribute to more final salary schemes going into deficit.  This may then lead to schemes seeking bail out from the pension protection fund which at the same time, they are funding.

Record low interest rates, falling gilt yields and the Bank of England’s money printing programme have left UK companies facing a new £80m bill.

The Pension Protection Fund (PPF), which takes on defined benefit pension schemes of collapsed companies in the UK, said it had been forced to increase the levy it charges businesses to £630m this year, compared to the £550m it had originally predicted.The PPF collects the annual levy from all companies with defined benefit pension schemes.The aggregate pensions deficit of the 6,432 schemes covered by the PPF now stands at £280bn, compared to £126bn a year earlier.pension

Alan Rubenstein, the PPF’s chief executive, said: “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.” Business and pensions groups welcomed the PPF’s decision to increase the levy by 15pc – and not the maximum 25pc it was able to do.

The pensions lifeboat plans to be self sufficient by 2030 when it hopes to be supported by its investment and not need to impose a levy on UK businesses. The levy will remain at £630m next year. Joanne Segars, chief executive of the National Association of Pension Funds, said: “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.”

Meanwhile, the CBI said the lower-than-expected increase will “relieve some of the financial pressure felt by many businesses with defined benefit schemes”. “Businesses will welcome the PPF Board’s decision to take account of the wider economy,” said John Cridland, director-general. “We acknowledge that this is a one-off move by the board in light of the UK’s difficult economic position.”

Original Article : Telegraph

Jamie Dunkley

By , Financial Services Correspondent

 

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