The main sources of information used in the levy calculation are:
- the most recent section 179 valuation information submitted via your annual scheme return/Exchange
- block transfers certified via Exchange, where applicable
- the failure score, risk indicator or equivalent for each scheme sponsoring employer as at 31 March 2008, provided by D&B.
You can also submit additional information, via the Pensions Regulator’s Exchange system which may reduce your levy bill:
- deficit reduction contributions made since the last scheme valuation
- contingent assets pledged to the scheme.
We will not generally use information that has not been submitted by the relevant deadlines for that levy year and/or in the form specified by the PPF or the Regulator, though we do have the right to do so if we consider it necessary to charge an appropriate levy.
How we use this information:
The determination
The rules for calculating the scheme-based and risk-based levies form the Determination under Section 175(5) of the Pensions Act 2004 (referred to as ‘the determination’). This document, on which we consult, details how we have to treat your scheme and employer data for the purposes of the levy. The determination is a legal document and, as such, governs the way we calculate the levy.
The determination and its annexes and appendices for each levy year can be found in the document library.
The roll-forward methodology
When calculating the scheme-based levy and the underfunding factor of the risk-based levy, we use the asset and liability figures from your most recent section 179 valuation.
We measure assets and liabilities at a consistent date, for all schemes in each levy year, so your valuation is rolled forward (or backward) to this date. This is done using the methodology detailed in Appendix 1 to the determination.
Schemes that haven’t submitted a section 179 valuation and/or don’t submit certified block transfers where we expect certification will have their assets adjusted in accordance with Appendix 2 and Appendix 2A of the determination, respectively.
The scheme-based levy
The scheme-based levy (SBL) is based on a scheme’s liabilities to members on a section 179 basis.
It is calculated using the formula:
SBL = 0.000145 x L (2010/11 value)
L is the scheme’s estimated liabilities on a section 179 basis, rolled forward or backward to the measurement date.
The multiplier 0.000145 applies to every scheme. This multiplier ensures that the scheme-based levy will make up approximately 20 per cent of the total pension protection levy we aim to collect each year.
The scheme-based levy multipliers for each year are:
|
2010/11 |
0.000145 |
|
2009/10 |
0.000162 |
|
2008/09 |
0.000165 |
|
2007/08 |
0.00016 |
|
2006/07 |
0.00014 |
The risk-based levy
The information below is based on arrangements for the 2010/11 levy year. If you need more information on other years, determinations and levy guides are available from the document library. Ensure you search for archived documents
The risk-based levy (RBL) is based on the likelihood of a scheme making a claim on the PPF and the potential size of that claim.
It is calculated using the formula:
RBL = underfunding risk (U) x insolvency risk (P) x levy scaling factor x proportion risk-based
Underfunding risk represents the size of a scheme’s potential claim on the PPF.
U is the underfunding amount of the scheme determined using the scheme’s rolled-forward assets and liabilities, taking account of any valid contingent asset arrangements and deficit reduction contributions.
Insolvency risk represents the likelihood of a scheme’s sponsoring employer(s) becoming insolvent and the scheme making a claim on the PPF.
P is the probability of insolvency of the sponsoring employer or employers, taking into account the scheme structure. Probabilities of insolvency are provided to the PPF by D&B. P may be modified where there is a Type A contingent asset. (see below).
The levy scaling factor (LSF) scales up the amount based on short-term risk exposure to ensure that the total levy collected matches the levy estimate, which takes into account other factors, including long-term risk exposure.
The levy scaling factors for each year are:
|
2010/11 |
1.64 |
|
2009/10 |
2.22 |
|
2008/09 |
3.77 |
|
2007/08 |
2.47 |
|
2006/07 |
0.53 |
The proportion risk-based is 0.8, because the risk-based levy is 80 per cent of the pension protection levy.
The risk-based levy is capped at a percentage of liabilities to protect the most vulnerable schemes. Where the risk-based levy calculated exceeds that percentage of liabilities, the cap (K) is applied and the risk-based levy is calculated using the following formula:
RBL = K x L
L is the scheme’s estimated liabilities on a section 179 basis, rolled forward or backward to the measurement date.
The risk-based levy caps are as follows:
|
2010/11 |
0.5 per cent of liabilities |
|
2009/10 |
1 per cent |
|
2008/09 |
1 per cent |
|
2007/08 |
1.25 per cent |
|
2006/07 |
0.5 per cent |