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2011/12 Pension Protection Levy Set
by Ian Neale 22/12/2010
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The Pension Protection Fund (PPF) has published the 2011/12 Pension Protection Levy Policy Statement. This document confirms:
- that the Board aims to collect an overall levy of £600m (2010/11 est. was £720m);
- the levy scaling factor of 2.07 and the scheme-based levy multiplier of 0.000135;
- that the taper will start at 135% funding (presently 120%);
- a risk-based levy cap of 0.75% of liabilities (presently 0.5%); and
- changes to how insolvency risk is measured.
No significant changes have been made to the draft proposals published for consultation on 30 September.
The PPF has also published the final Determination for 2011/12, which implements the Policy Statement. All documents associated with this, including Levy Practice Guidance and Contingent Asset Guidance can be found on the 2011/12 Determination page.
| Table of levies |
| Year | Scheme-based levy | Scaling factor for risk-based levy | Risk-based levy cap |
| 2006/07 | 0.00014 | 0.53 | 0.5% of liabilities |
| 2007/08 | 0.00016 | 2.47 | 1.25% |
| 2008/09 | 0.000165 | 3.77 | 1% |
| 2009/10 | 0.000162 | 2.22 | 1% |
| 2010/11 | 0.000145 | 1.64 | 0.5% |
| 2011/12 | 0.000135 | 2.07 | 0.75% |
Under s.177(3) PA 2004, 80% of the PPF's estimated total levy must be raised from the risk-based levy, which makes the evident volatility all the more worrying. This has led to the consultation, which closed this week, on proposals for a new and more predictable basis for reckoning the annual levy (see Aries article). It’s likely that 2011/12 will be the last year in which the current formula will apply.
A significant part of the reduction in the levy estimate from £720m in 2010/11 to £600m for 2011/12 results from the proposed move to CPI. The Board states that this is consistent with the amounts necessary to keep them on track for their target of funding self-sufficiency by 2030. The desire for greater predictability in the levy is shared by the Board. One reason why the actual amount collected often varies significantly from the estimate (eg for 2009/10, £592m vs. £720m est) is the scope for schemes to take action to reduce their levy liability, eg via deficit reduction contributions made since the last scheme valuation, or contingent assets pledged to the scheme.
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