Overhaul of PPF levy needed says NAPF

The Pension Protection Fund levy should be capped and the Government should act as its guarantor, according to the National Association of Pension Funds.

The proposal is one of a number of changes to the PPF put forward by the NAPF in its response to the recent PPF consultation on the future development of the annual levy.

The NAPF also says it does not accept PPF proposals for measuring long term insolvency risk. The body says it is greatly concerned by the current proposals, arguing these are based on very extreme economic conditions that only arise every 200 years. The NAPF believes this would provide a poor indication of insolvency risk.

It suggests that for the majority of schemes long-term measurements should instead be related to average economic conditions. It says for the largest schemes, the only way of meaningfullyassessing long-term risk would be to carry out an analysis of covenant strength, funding plans and investment strategy.

It argues a Government guarantee is needed because it is neither fair nor credible that the full cost of other companies’ pension promises should rest on a declining number of DB pension schemes and their corporate sponsors. The NAPF says the Government should recognise reality and explicitly guarantee that it will meet, or at least assume responsibility for, any rises in the aggregate annual levy above a fixed and specified level.

Nigel Peaple, director of policy at the NAPF, says: “We recognise the important role played by the PPF levy in guaranteeing member security and promoting confidence in pension provision. However, we must make sure it does not undermine current pension provision by placing too great a burden on well-funded schemes, especially where they are backed by a strong company.

“To give more certainty to pension schemes, we believe the aggregate levy should be capped at a fixed and specified level close to the current levy. The Government should assume responsibility for costs above current levy levels and should also be the ultimate guarantor of the PPF.”