Business leaders welcome freeze for 2013/14 and decision to take account of the wider economy in setting the levy estimate
Employers with final salary pension schemes have gained some respite from rising costs after the Pension Protection Fund said it would hold its annual levy at £630m.
Business leaders welcomed the freeze on Monday for 2013/14, which they said would allow many of the 6,400 employers that still operate guaranteed occupational retirement schemes to cope with volatile stock markets and difficult economic conditions.
The PPF said greater risks that pension funds would fail to fill funding shortfalls should lead to a rise in the levy, but the weak economy meant employers had enough to deal with without the fund increasing its annual bill.
Firms have already been forced to pay an extra £80m more than the original estimate this year, taking the levy from £550m to £630m.
PPF chief executive, Alan Rubenstein, said increasing investment risks meant the levy freeze was a one-off and would be lifted in subsequent years.
He said: “We have seen pension scheme funding deteriorate significantly in the last 18 months. We have seen that reflected in claims in the current year, which already exceed our annual levy.
“Therefore, it should come as no surprise that this level of heightened risk would ordinarily result in a substantial increase in the levy estimate, up to the maximum permitted, particularly as our levy framework is designed specifically to respond to changes in risk of this nature.
“However, we are realistic and have listened. We know that many employers are still struggling in the continuing economic turmoil. That is why, exceptionally, we have set a levy estimate that means schemes will typically see levies at similar levels in 2013/14 as they will for this year.”
The PPF rescues the pension schemes of companies that have gone bust. It manages 476 schemes covering 142,000 workers. To make up a shortfall in the scheme’s funding, it raises a levy on schemes that are still solvent.
John Cridland, director general of the business lobby group, the CBI, said the PPF board’s decision to take account of the wider economy in setting the levy estimate was the right decision.
He said: “Limiting the rise in the levy estimate to 15%, rather than the 25% that had been anticipated, means that the PPF will plan to collect the same amount in 2013/14 as it ended up collecting this year, due to market movements. This move will relieve some of the financial pressure felt by many businesses with defined benefit schemes.
“We acknowledge that this is a one-off move by the board in light of the UK’s difficult economic position.”
Rubenstein said fewer employers were found paying extra funds into their schemes to limit their exposure to volatile markets.
The 6,432 schemes affected by the levy have more than £1 trillion in assets but suffer a persistent shortfall, which in August stood at £280bn.
Rubenstein warned that levy increases in future were inevitable if the current high risk conditions persisted, saying: “People should bear in mind that, if our protection regime in the UK is to be credible, then it needs to be funded. The alternative, an inadequately resourced PPF, would fail to offer the security that pension scheme members deserve, and would strengthen the hand of those who argue for more radical measures to deal with risk such as the imposition of insurance style solvency requirements for pension schemes.”
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