The UK’s Pension Protection Fund (PPF) is lowering its levy estimate for the next fiscal year to £550 million from the £615 million estimate for 2017-18.
The PPF said that its financial position remains sound, despite operating in a “particularly challenging environment” amid political and economic uncertainty, and with pension deficits remaining high.
“While the risks we face are significant, we’re in a strong financial position and we’re still on track to meet our long-term funding target,” said David Taylor, general counsel for the PPF. “As a result, we’ve been able to set a levy estimate for 2018-19 that is 10% lower than last year.”
The PPF is a statutory fund that provides compensation to members of eligible defined benefit pension plans in the event of insolvency, and when there are insufficient assets to cover PPF level of compensation.
“Of course, an individual scheme’s levy will depend not just on the aggregate amount we aim to collect, but also on movements in the risk it poses to us,” added Taylor. “We’ve always sought to make our levy calculation methodology reflect that risk as well as we can.”
The PFF also said it will implement the majority of proposals consulted on in March for the third levy triennium. The consultation focused on proposals to develop the assessment of insolvency risk for the PPF levy, as well as proposed changes in other areas, such as contingent assets, and the certification of deficit-reduction contributions.
“If these rules were in place now, two-thirds of schemes would have seen a decrease in their 2017-18 levy, with around a fifth of schemes seeing an increase,” said Taylor. “This redistribution reflects the improved risk reflectiveness of the levy as a result of the changes we will be making for the third triennium.”
The PPF said it will consult on the new proposals and the draft levy rules for 2018-19 until Nov. 1, after which the fund will finalize the rules and publish the levy determination in December.