The pension protection levy estimate for the next financial year will fall by almost 10% to £635m, compared to £695m in 2013/14, the Pension Protection Fund (PPF) says.
Publishing the 2015/16 Levy Determination document yesterday, which sets out the Levy Rules, the PPF confirmed that the overall rate was projected to fall for the next two years for all defined benefit schemes.
The document noted: 'Based on expectations of how the funding position of schemes will improve over the second triennium, our expectation is that levy collections will fall in each of the succeeding two years. The exact path of the levy for future years is uncertain however, as it will move with changes in measured risk.'
The PPF also said it would set a levy scaling factor of 0.65 and scheme-based levy multiplier of 0.000021 in order to aim to collect the Levy Estimate.
PPF chief executive officer Alan Rubenstein added: 'We recently said in our Funding Strategy Update that we remain on course to meet our long term funding target of self-sufficiency by 2030, but substantial risks remain.
'We have therefore chosen to continue our approach from the first triennium in setting the overall levy rate for the coming year. This means we have sought to neutralise the wider levy changes, allowing the impact of improved funding to bring the quantum down.
'As a result we will seek to collect a reduced amount in 2015/16 in line with changes in current risk that we have seen. While the future is inevitably uncertain, levy estimates for the following two years appear likely to fall further rather than rise, based on the expected path of asset values and yields.'
The PPF also said changes would be made to the way it calculates insolvency risk. Its 'enhancements' included amended rules on how the model reflects mortgages. The Fund said it would ensure mortgages that are not relevant to insolvency risk are excluded.
Also, the PPF revised its approach to asset-backed contributions (ABC) and said it would recognise all asset types not just UK property, provided the ABC is valued in a way that reflects worth to the PPF in the event of insolvency.
Commenting on the announcement, Jim Bligh, the Confederation of British Industry head of pensions, said: 'The PPF has made some much-needed and important changes to the way it calculates the levy, particularly in allowing greater flexibility for asset-backed contributions.'
He said it was 'good news' that the PPF would now collect less money overall from the business community because of its strong investment performance. However, many businesses would pay considerably more in their levy based on significant changes to their credit scores, Bligh said.
'To minimise the impact on investment, job creation and growth, the PPF must ensure these firms have sufficient time to adapt,' he added.
'Businesses are eager to see further changes to the model to ensure it is fair and accurately reflects their risk of insolvency. Large companies with overseas headquarters would be concerned if the PPF does not use a credit override.'
