UK - The UK Society of Pension Consultants has claimed the UK government should grant pension schemes of companies which are in financial distress temporary amnesty from PPF levies, to enable corporate sponsors to continue their defined benefit scheme.

The society, a UK representative body for providers of advice and services to work-based pension schemes, has labelled the announced Pension Protection Fund (PPF) levy rise during the current economic downturn as "insensitive" and as sending "the wrong message".

If the government does not grant such temporary amnesty, it should at least explore other options, as well as considering the possibility of temporary reducing levies for selected companies in distress, argued Duncan Howorth, president of the body.

"The decision to allow the PPF levy ceiling to rise by 3.6% is potentially very dangerous for UK businesses," said Howorth.

He thinks the new ceiling will be used when levies are next set, which would add another £100m (€110m) to the levy collection.

KPMG today also suggested the increased charges that come with the changes to the PPF's risk-based levy may take companies by surprise, putting them off a more risky strategy.

KPMG argued without some element of risk, it will be difficult to shrink the shortfalls. 

The PPF proposes to introduce loadings to the levy, from 2011, to reflect the long-term risk an employer's pension scheme represents, including an adjustment relating to the investment strategy a pension scheme currently follows.

Ben McDonald, partner in KPMG's Pensions Advisory Practice, commented: "Although we are supportive of the intentions and the logic behind the PPF's proposals, we do wonder if trustees and scheme sponsors realise the price they may have to pay for taking investment risk in their pension schemes."

For a £100m pension scheme, the amount of the proposed risk-based levy represents an extra £400,000 premium to the PPF (or 0.4% per annum), which could be viewed as expensive. 

Although the levy is unlikely to directly influence the setting of investment strategy, its impact at these levels should probably be taken into account, says KMPG.

McDonald concluded: "Following a risky strategy has the potential to really ratchet up the levy."

If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on + 44 (0)20 7261 4622 or email carolyn.bandel@ipe.com

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