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The Actuary The magazine of the Institute & Faculty of Actuaries

PPF cuts levy to £550m, set for three years

Chief executive Alan Rubenstein said the figure represented the lowest levy that the PPF has ever set and marks a reduction from £600 million in 2011/12, the second cut in two years.

Alongside this announcement, the lifeboat fund began consulting on the rules which will govern its new levy framework coming into effect for the first time in 2012/13 and are needed to calculate individual levy bills.

The new rules are to be fixed for three years - a break from the past when the PPF changed the way the levy is calculated every year.

The PPF says this means that levy bills will be more predictable and schemes can expect that, if their risk falls over the three years, then so will their levy. The rules are also designed to make the levy more stable.

Speaking at the Professional Pensions Show 2011, Mr Rubenstein said: "The further reduction in the amount of levy we want to collect again recognises our desire to protect employers and pension schemes which are still navigating choppy waters - while remaining mindful that we also have to protect our own financial position.

"That said, the £400 million surplus we posted last year showed that we remain on course for achieving our aim of being financially self-sufficient by 2030. And we expect to have built on that strong foundation when we announce our 2010/11 results later in the year.

"We are also delighted that we can finally put in place the rules for our new levy framework which enable schemes to plan for their levy bills for the next three years. I would also encourage schemes to take risk reduction measures as they have a direct impact on the amount of levy they pay."

Nick Griggs, partner at Barnett Waddingham, said: "A £50m reduction in the levies to be collected is welcome news for sponsors of DB schemes although sponsors should recognise that this does not mean that their levy invoice will necessarily be lower. The PPF has made some significant changes to the levy calculation and there will be winners and losers. Schemes should already be considering any action that can be taken to reduce their levy as the D&B credit scores that will be used in the 2012/13 levy calculation are already being collected."

Helen Baker, partner at pensions law firm Sackers, added: "The lower levy is good news and will be welcomed by both trustees and employers alike.

"The PPF is planning to set rules that will be used to calculate levies for the next three years. This long-term approach will give far more certainty and enables schemes to plan ahead."

The PPF confirmed the details of its new pension protection levy framework earlier in the year. The levy is paid by all eligible defined benefit, eg final salary, pension schemes to fund the compensation the PPF pays to people whose employers have become insolvent and their pension schemes cannot afford to pay the pensions they promised.