Press release welcoming PPF levy announcement

by Dr. Ros Altmann

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Today’s announcement of PPF levy calculations for 2007-08 indicating that many schemes will face a doubling or more of their levy, shows a prudent response to the unexpectedly low level of collections from last year’s levy.  Having collected only £320m out of the desired £575m last year, the PPF is having to recoup more money this year.   If the PPF had collected this extra £255m, its £343m deficit would only be £88m!

The PPF wants to collect £675m, which is still only 2% of total pension contributions and is tightening its calculation procedures to avoid significant shortfalls this time.  The reason for last year’s shortfall include
            – renegotiations of Dun and Bradstreet risk scores,
            – inadequate information on liabilities,
            – market movements which changed scheme funding levels and
            – payment of contingent assets or additional contributions by sponsors
Apart from the last item, the first three should be more accurately controlled this year by changes D&B score factors and using April 2007 as the date at which the scaling factors for the calculations will be set, so I would expect there to be far less problem with shortfalls in future.

Firms should not complain too much about paying some more this year as they paid far less than they should have done last year.  We must not forget that this is about members of schemes who are relying on their company pension for their retirement security (given that state pensions are so low) and it is long overdue that we have a proper protection mechanism in place.  Tens of thousands of lives have been blighted by the lack of insurance in the past and this could not be allowed to continue.  Even with sophisticated fire alarms and sprinklers, people do not leave their house uninsured.

It is entirely sensible for the PPF to seek to raise more money this year, especially given that the economic environment and insolvency background have been reasonably benign.  Although there remains cross-subsidisation from today’s stronger, better funded schemes,  any funds which are over 125% funded on a PPF basis will not pay any risk-based levy at all, so there are still clear incentives for firms to improve their funding levels.

Over the medium term, the PPF’s liability driven investment policy aiming to consistently outperform the liabilities, should reduce the deficit over time and allow stability in the longer term levy payments.

I warmly welcome the PPFs prudent approach to its levy calculations and hope that companies, trustees and members will recognise the need for realistic levy payments to be made to protect members’ future pensions.