Pensions Conference 2011. Review of Workshop E2: The new Pension Protection Levy framework

PPF Levy from 2012/13: fairer and more predictable

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Introducing the session, Stephen highlighted that a critical task for the PPF was to understand and manage its risks over the long term.  He said that the PPF’s funding strategy charts a course, over the next twenty or so years, towards a future in which the levy ceased to be a significant source of income for the fund, with the PPF’s success or failure depending on its ability to manage its investments and risks together.

Stephen stressed that before then, the levy would continue to be an important resource, and that the PPF wanted to ensure that it was both consistent with the PPF’s funding strategy, and that it better reflected stakeholder expectations.

In terms of the New Levy Framework, Stephen highlighted the main changes to be introduced from 2012/13 as:  

• Setting the rules for the levy for a three-year period - making the levy predictable further ahead. 
• A scheme’s levy will still vary depending on movements in its risk, though the PPF are also making changes to smooth the assessment of risks, so levies are more stable. 
• A stronger emphasis on scheme funding in the new formula.
• Reflecting scheme investment strategies in the levy – generally using information already provided by schemes: though the largest schemes (and others that wish to) will report a bespoke investment test.
• Placing scheme sponsors in a limited number of bands for insolvency risk, rather than using the 100 D&B failure scores directly. 

Finally, Stephen concluded that the PPF believed that the changes to the levy being introduced from 2012/13 would give schemes more control over the levers that influence their individual levy bills, and that the PPF’s analysis showed that this should actually deliver more stable levies than the current system does.