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 average failure score, risk indicator or equivalent for each scheme employer between April 2011 and March 2012, 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 the current levy year can be found on the 2012/13 Determination page.
Roll-forward, smoothing and stressing
We used the asset and liability figures from the latest section 179 valuation submitted on or before 30 March 2012, to calculate the scheme-based levy and the underfunding risk factor of the risk-based levy.
Assets and liabilities were then rolled forward and adjusted to reflect market conditions up to 31 March 2012, having been ‘smoothed’ to reduce volatility. This is done by using average values over a five year period. This gave us figures for the assets and liabilities that have been smoothed but not stressed (referred to in the Levy Rules as Unstressed Assets/Liabilities).
This liability figure is used in the scheme based levy, and in calculating the cap on the highest risk-based levy you can pay.
The next stage in transforming the asset and liability information provided is to take account of investment risk. We have done this by applying stresses according to the degree of risk associated with the type of asset held by the scheme, or if your scheme carried out and reported the results of its own investment risk analysis, by applying that single stress to the total assets.
When calculating the scheme-based levy and the underfunding factor of the risk-based levy, we use the asset and liability figures received up to immediately before the start of the 2012/13 levy year.
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 = 0.000085 x UL
UL is the scheme’s liabilities on a section 179 basis rolled forward to 31 March 2012 and smoothed but not stressed.
The multiplier 0.000085 applies to every scheme. This multiplier ensures that the scheme-based levy will make up approximately 11 per cent of the total pension protection levy we aim to collect.
The scheme-based levy multipliers for each year are:
|
2012/13 |
0.000085 |
|
2011/12 |
0.000135 |
|
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 2012/13 levy year. If you need more information on other years, determinations and levy guides are available from page containing all levy 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 (IR) x levy scaling factor (LSF)
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. In the great majority of cases, U has been calculated including the impact of stressing assets and liabilities.
Insolvency risk represents the likelihood of a scheme’s employer(s) becoming insolvent and the scheme making a claim on the PPF.
IR is the probability of insolvency of the sponsoring employer(s), taking into account the scheme structure. Probabilities of insolvency are provided to the PPF by D&B. IR 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:
|
2012/13 |
0.89 |
|
2011/12 |
2.07 |
|
2010/11 |
1.64 |
|
2009/10 |
2.22 |
|
2008/09 |
3.77 |
|
2007/08 |
2.47 |
|
2006/07 |
0.53 |
Capping
The risk-based levy is capped to protect the most vulnerable schemes. The cap for 2012/13 is 0.75 per cent (represented by K in the formula) of unstressed liabilities. Where the risk-based levy calculated using the above formula exceeds 0.75 per cent of section 179 liabilities, the cap is applied and the risk-based levy is calculated using the following formula:
Risk-based levy cap = Unstressed liabilities (UL) x K
When carrying out this calculation, we used 0.007500 for K
|
2012/13 |
0.75 per cent of liabilities |
|
2011/12 |
0.75 per cent of liabilities |
|
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 |