The administration levy that employers are required to pay towards the costs of running the Pension Protection Fund (PPF) could rise by almost 50%.
The PPF was established to pay compensation to members of eligible defined benefit pension schemes should an employer become insolvent and has insufficient assets to cover members’ pensions.
The size of the administration levy depends on the number of members in an organisation’s scheme. A consultation, which closed on 20 December 2006, included figures by the Pensions Group, which is part of the Department for Work and Pensions, that indicated the minimum levy for schemes with between two and 11 members could rise from £24 to £35. Schemes with between 100 and 999 members could see costs increase from £250 to £370, while those with 10,000 or more members could be expected to pay £15,690, compared with the current figure of £10,600.
The new charges will come into force by 31 March 2007.
A consultation is also taking place on the risk-based part of the PPF levy, which is also calculated on the number of staff in a scheme, according to how likely it is to need help from the fund.
Lesley Browning, a partner at law firm Norton Rose, said clients were concerned about how the risk-based levy is going to be calculated. "I don’t think they are very comforted by what is coming out of the PPF so far. When the PPF was first established, [it] set a quick-fix of dealing with the levy, it always anticipated [it was] going to revisit it to make the calculations more sophisticated."