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PPF Announces £550m Levy Estimate, Consults on 3 Year Levy Rules

21 September 2011
  • Pension protection levy for 2012/13 will be £550m, the lowest ever set
  • Rules governing new levy framework for next three years are confirmed
  • Levy rules deliver stability and predictability called for by levy payers
  • PPF remains on course to reach self-sufficiency by its 2030 target
Chief Executive of the Pension Protection Fund (PPF), Alan Rubenstein, announced today (Wednesday) that the pension protection levy estimate for 2012/13 will be £550 million.
This is the lowest levy that the PPF has ever set and marks a reduction from £600 million in 2011/12, the second cut in two years.
Alongside this announcement, the PPF began consulting on the rules which will govern its new levy framework coming into effect for the first time in 2012/13 and are needed to calculate individual levy bills.
In a significant break from the past - when the PPF changed the way the levy is calculated every year - these new rules are intended to be fixed for three years.
This means that levy bills will be more predictable then ever before and schemes can expect that if their risk falls over the three years, then so will their levy. The rules are also designed to make the levy more stable.
Speaking at an industry conference, Alan Rubenstein said: “The further reduction in the amount of levy we want to collect again recognises our desire to protect employers and pension schemes which are still navigating choppy waters – while remaining mindful that we also have to protect our own financial position.
“That said, the £400 million surplus we posted last year showed that we remain on course for achieving our aim of being financially self-sufficient by 2030. And we expect to have built on that strong foundation when we announce our 2010/11 results later in the year.
“We are also delighted that we can finally put in place the rules for our new levy framework which enable schemes to plan for their levy bills for the next three years. I would also encourage schemes to take risk reduction measures as they have a direct impact on the amount of levy they pay.”
The PPF confirmed the details of its new pension protection levy framework earlier in the year. The levy is paid by all eligible defined benefit, eg final salary, pension schemes to fund the compensation the PPF pays to people whose employers have become insolvent and their pension schemes cannot afford to pay the pensions they promised.
Notes to editors:
1. Copies of the consultation document and the draft 2012/13 levy determination can be found on the Pension Protection Levy page. The consultation will run until Wednesday 2 November.
2. Key features of the new framework - which was developed in close co-operation with stakeholders in industry and beyond, and which received widespread support, include:
  • fixing levy rules for three years to provide the certainty levy payers have asked for,
  • smoothing funding levels by using averages of market data so that short-term volatility in financial markets is not reflected in the measure of underfunding risk,
  • reflecting investment risk in the levy calculation for the first time, and
  • a system of ten insolvency rating bands, an increase from the six originally proposed. This responds to industry concerns that six bands would create cliff-edges where schemes could possibly face large levy rises.
3. The consultation includes details of the rules for the next three years, including setting a levy estimate at £550 million for 2012/13. It also indicates that these rules are expected to lead to levies of about £550 million in 2013/14 and 2014/15, though an updated estimate will be made and determination published before the start of each year.
4. The Pension Protection Fund was set up under the provisions of the Pensions Act 2004 in April 2005 and is classified as a public financial corporation. It has been established to pay compensation to members of eligible defined benefit and hybrid pension schemes when there has been a qualifying insolvency event in relation to the employer, and where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation.
For further press information contact: Richard Hunt on 020 8633 5931/0789 425 5561 or Ana Moreno on 020 8633 4932/ 07961 957 480

[Published: 21 September 2011]

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