A pre-Christmas consultation [PDF] has been launched by the DWP on minor amendments to the Occupational Pension Schemes (Levies) Regulations (SI 2005/842 as amended by SI 2006/935).

The Pension Protection Fund (PPF) is funded by four main levies on eligible schemes (ie schemes which can claim PPF compensation, which excludes money purchase schemes):

• the scheme-based levy
• the risk-based levy
• the administration levy
• the PPF Ombudsman levy

The draft regs concern only the last two.

First of all they remove references to the PPF Ombudsman levy. No levy was imposed for 2005/06 or 2006/07, and the small amount that might be needed in future can be recouped in another way. Second, they specify the amount of the administration levy for the financial year ending 31 March 2008. The proposal is an increase of almost 50% on the present levy (current figures in brackets):

The draft regs also insert a new provision, to waive the administration levy where either the scheme based levy or the risk-based levy is also waived in respect of a scheme.

We reported earlier on the PPF's proposals [PDF] for the 2007/08 risk based levy: that consultation closed on 9 October.

Other recent developments with the PPF

The Board has updated its Statement of Investment Principles [PDF] ahead of the first schemes entering the PPF. The document sets out the Board's principles and policies governing the investment of the pension protection levy, and assets inherited from pension schemes that will transfer to the PPF.

The accompanying press release emphasises the liability-driven investment strategy adopted by the Board, targeting a 1.4% pa out-performance over the benchmark. The aim is to balance security for scheme members and the interests of levy payers, limiting exposure to the risk of underperforming at the same time as UK DB pension schemes.

The Pensions Protection Fund (Levy Ceiling) Regulations 2006 (SI 2006/2692) were laid this month and come into force on 6 November 2006.

When the Board consulted in December 2005 on what it would need to raise for 2006/07, it set the proposed risk based levy estimate at £460m and the proposed scheme based levy estimate at £115m, giving a total proposed levy estimate of £575m.

The levy ceiling is a statutory restraint imposed on the PPF levy, as an overall limit that the levy cannot surpass, and was set at £775m for 2006/07 (financial year). From 1 April 2007 the levy ceiling is to be uprated annually in line with the general level of earnings, although for 2007/08 only, s.177 (4) PA 2004 provides that regs may prescribe a lower figure. These Regs set the figure at £718.75m. Thus the 'margin for error' allowed (above the Board's £575m estimate) is 25%. If the Board should find that it needs to collect a higher levy than the ceiling, it must consult before doing so.