Pension Protection Fund offers short-term reprieve for large plans

The Pension Protection Fund (PPF) has offered short-term reprieve for large schemes and says it could run a deficit for decades.

It announced yesterday that it will delay its plans to make the largest pension schemes provide a bigger share of the money it collects through levies by at least a year.

The PPF currently collects £700 million a year in levies from defined benefit pension schemes and has warned this figure is likely to rise when the economy starts to recover. In November, it published proposals for changing the way that this burden is distributed between pension schemes, saying it intended the new rules to apply from 2011/12.

These changes would have seen the share of the levy paid by the largest 100 pension schemes rise from 27% to up to 31%. The PPF has said its proposals need further work and will not be introduced until 2012/13 at the earliest.

Consultancy Watson Wyatt said the recession could leave the PPF with a significant deficit but depending on its eventual size, this could be repaid automatically because the PPF expects that, in normal years, it will collect more in levies than it needs to cover new claims.

The PPF has said that, because it will be some time before it runs out of money, it can operate with a deficit for a long period, even decades.

John Ball, head of defined benefit at Watson Wyatt, said: “It is good that the PPF has gone back to the drawing board. Taking a longer-term view of the risks it faces is fine in principle but the devil is in the detail.

“It is encouraging to see the PPF look at this again but it still wants large employers to take a lot of the strain when it comes to clearing the PPF’s deficit and helping it build up a cushion for the future.”