The principles underpinning the future of the pension protection levy have been unveiled by the Pension Protection Fund’s (PPF) director of financial risk Martin Clark.
Addressing delegates at the National Association of Pension Fund’s (NAPF) annual conference and exhibition in Glasgow, Clark outlined long-term levy proposals that aim to make the way the levy is calculated fairer and increase stability in individual levy bills.
The proposals, subject to a three month consultation at the end of the month, look at reducing the scheme-based element of the levy and offering a greater year-on-year stability in individual bills. Greater stability will be achieved because the levy will be less sensitive to short-term changes in insolvency ratings and levels of under funding.
An element will also be added to the risk-based element of the levy to reflect a scheme’s contribution to the long-term risks that the PPF faces, even from well funded schemes. And the scheme’s investment strategy and credit risk will be taken into account.
Martin Clarke, director of financial risk at the Pension Protection Fund, said: “When we first introduced the levy, we tried to make it simple as its implementation represented a major challenge for us particularly as we had limited information about the risks we were exposed to.
“We now have a far better understanding of those risks – and this led to a recognition that we need to achieve greater fairness when we calculate the levy.”