UK - Plans by the Pension Protection Fund (PPF) to set the rules for calculating levies for a period of three years, instead of revising them each, will give pension funds more certainty and let them to plan ahead, pensions law firm Sackers has said.

Partner at the firm Helen Baker said: "This long-term approach will give far more certainty and enables schemes to plan ahead."

The PPF announced yesterday that the pension protection levy estimate for 2012-13 would be £550m (€630m).

It also said the new rules would be fixed for three years - a break from the past when it changed the way the levy was calculated every year.

Barker said that, with terms now fixed for three years, pension schemes could identify factors that were having an adverse impact on the risk-based levy and take steps to cut risks.

"These can include contingent assets, additional funding and changes in investment strategy," she said.

"Other steps can help too - for example, employers may be able to make relatively simple changes to the companies that have links with the scheme and make a real difference."

Barker also welcomed the levy estimate for 2012-13, which is the lowest figure ever set by the organisation.

"As schemes continue to deal with volatility in investment markets and the issues faced by employers in a challenging economic climate, the lower levy estimate of £550m is good news and will be welcomed by both trustees and employers alike," she said.

In other news, Moody's Investors Service said moves by UK pension funds to up their emerging-market debt (EMD) allocations were good for portfolio stability, but it also warned funds to make certain they understand the risks involved.

The ratings agency said: "UK pension funds are increasing their long-term strategic allocations to local emerging-market debt investments, a move that is a positive development for the stability of pension funds' long-term portfolios."

The development was positive for two reasons, it said.

Senior analyst Soo Shin-Kobberstad said: "First, it is likely to mitigate volatility that could stem from concentrated exposure to a limited number of issuers. Second, it will enhance portfolio returns generally, as overall growth prospects for emerging markets remain far stronger than for developed markets."

The returns from EMD would add greatly to the growth portion of UK pension funds because they are seen as outpacing UK inflation in the long term, while currency appreciation in emerging markets could further enhance EMD returns, Moody's said.

Capital markets in emerging markets have become much more transparent because of increased liquidity and diversification, it added.

But investing in the sector has its risks.

The agency warned: "Pension funds would have to understand the risks associated with EMD investment that may be unfamiliar to them and establish a methodology to assess those risks.

"Factors for consideration in the case of investment in local EMD funds include the strength of the investment manager and the credit quality of a fund, relative to its peers."

Meanwhile, Aon Hewitt revealed that the cost for UK pension schemes of buyouts has reached its highest level ever.

Buyout liabilities for companies in the FTSE 350 - the cost of transferring current and future liabilities to insurers - have risen by more than 30% in the last eight months to £850bn (€973bn) from £650bn in February, the consultancy said.

On the other hand, UK pension deficits measured on an accounting basis have remained broadly stable, according to the Aon Hewitt 350 index.

The collective final salary pension accounting deficit of FTSE 350 companies is now around £40bn, having been at this level for much of 2011, it said. 

John Belgrove, principal consultant at Aon Hewitt, said: "The scrutiny placed on accounting measures is masking the economic reality that pension schemes face as buyout costs have ballooned to record levels."

Finally, AXA Investment Managers has called on the government to be flexible when issuing proposed CPI-linked gilts because demand for the new bonds may take time to develop.

David Dyer, senior portfolio manager in the global rates team, said: "We welcome the introduction of CPI-linked gilts, although we expect it will take time for demand for the assets to develop. Consequently, we would recommend the government adopt a flexible issuance strategy."

The Debt Management Office's consultation on CPI-linked gilts closes today.

Dyer noted that CPI was used more and more as a measure of UK inflation and was also used in the indexation of pension scheme benefits. 

"As a result, we would expect increased demand for assets linked to UK CPI," he said.

"However, we also notice that it is taking time for pension schemes to assess the effect of changes in legislation on their liabilities, and hence we would expect that this demand will take time to grow."

Dyer said there could be particular demand from international investors for the new government bonds because the measure tallied more closely with inflation rates used on international inflation-linked bonds.

"Benchmarked investors whose benchmarks incorporated the CPI issues would also provide automatic demand," he added.

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