PPF unveils levy calculation proposals

The Pension Protection Fund’s proposed levy calculation reforms will bring “stability and predictability” to scheme payments, chief executive Alan Rubenstein says.

The lifeboat fund has unveiled proposals to use average measures for both under funding and insolvency risk, a move aimed at reducing volatility of levy payments.

This should, in theory, lead to a smoothing of payments over the economic cycle, preventing spikes based on a snapshot measurement of risk having a "disproportionate affect" on a scheme's levy bill.

The levy will then be fixed for three years beginning in 2012/13 - although this could be reviewed in "exceptional circumstances".

The new levy formula will also focus more on factors in the levy payers' control rather than those factors they have little influence over, the PPF said, placing a greater emphasis on funding positions and investment risk.

"With these proposals, we aim to have a robust levy that is fit-for-purpose and which, we believe, will be generally accepted by levy payers," Rubenstein says.

"We believe these proposals address key priorities highlighted by the industry about greater predictability and stability of levy bills and provide an increased focus on factors levy payers can control, allowing them to plan more confidently for the future."

He says the levy would play a "crucial role" in helping the PPF achieve its publicly-stated aim of becoming financially self-sufficient by 2030.

This follows confirmation that the PPF could cut its total levy demand from £720m to £600m for 2010/11.

The PPF said the move was its ‘first response' to government plans to increase PPF compensation in the future in line with the Consumer Prices Index rather than the Retail Prices Index.