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Adviser  >  Technical Central  >  OPS Matters  >  PPF – 2007/2008 levy estimate confirmed

PPF – 2007/2008 levy estimate confirmed

What's happening?

In short, the levy for 2007/2008 will be higher for most, if not all, schemes and in some cases, the increase could be substantial.

Background

In our November edition of OPS Matters, we talked about the Pension Protection Fund (PPF) levy, the key calculations involved and described how contingent assets can have a positive effect by reducing the levy.

The Levy 2007/2008

In their recently published determination, the PPF have confirmed their estimation that the total levy payment, collectable from solvent employers, will increase to £675m (from £575m for 2006/2007) made up of risk based levies of £540m and scheme based levies of £135m. But it's worth noting that the PPF only actually expect to collect £324m for the 2006/2007 year due to various factors, including market movements, more accurate data being provided by employers to assess their solvency and more accurate data on multi-employer schemes.

Investment risk

The Board had hinted that it would consider investment risk as a separate risk factor to the PPF. However, it concluded that the majority of schemes had broadly similar investment strategies so the cost of introducing investment risk would be disproportionate to the 3% reallocation of total levy it would need. So good news for the moment but the Board have said it will continue to monitor the situation.

The Maths - revisited

The formula for working out the levy hasn’t changed but the definitions have. This could mean a substantial increase in the amount of levy over the 2006/2007 amounts.

Insolvency risk

We mentioned back in November that employers need to look at small debts which can have a negative effect on their rating. The Board has now indicated that County Court Judgements (CCJs) will be an additional factor in determining the employer’s Dun & Bradstreet (D&B) Failure Score. To help employers keep an eye on this, they can now e-mail Dun & Bradstreet or call them on 0870 850 6209 to monitor their Failure Score on a weekly basis. If the employer doesn’t agree with a score, they can ask for it to be reviewed.

Scaling factor

The factor takes into account the risk the PPF is exposed to for all eligible schemes and allows the Board to collect the appropriate amount. For 2006/2007 it was 0.53 and is proposed to increase to 2.2 for 2007/2008. The net result is that poorly funded schemes may see their levy payment increase four fold.

RBL liabilities

Liabilities have been capped at 1.25% of the scheme’s PPF liabilities an increase from 0.5% for 2006/2007.

SBL multiplier

The multiplier is designed to allow the Board to collect the amount that matches its estimate and accounts for 20% of the total levy. For 2006/2007 it was 0.014% and is proposed to increase to 0.0195% for 2007/2008.

Contingent Assets

Scheme Trustees may have put in place contingent assets to help reduce an employer’s 2006/2007 levy payment. This required the completion of a standard certificate, based on legal opinion, which was submitted to the Board. Certificates to be considered by the Board for 2007/2008 must be submitted by 5pm on 30 March 2007.

If a contingent asset for 2006/2007 is to remain in place, the Trustees will need to re-certify the asset for 2007/2008. This can be done using a modified certificate issued by the PPF.

 

                                                                                                         

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