PPF likely to boost pension funding

Employers are expected to increase contributions to their pension deficits following the introduction of the pension protection fund (PPF) next month. Previously, organisations with defined benefit (DB) pension arrangements had less incentive to use any spare cash to help plug the gap. But Tim Keogh, partner at Mercer HR Consulting, said: "The PPF may encourage organisations to approve funding for their pension scheme rather than pay a tax on underfunding to the PPF. Whereas traditionally there were probably a number of more attractive places for a company to put spare cash [such as] buying back shares, if the pension scheme is underfunded, it is [now] much more attractive to pay a lump sum if they can afford it." Between April 2005 and March 2006 employers with a DB pension plan, or a hybrid arrangement, will have to pay £15 per member and £5 per deferred member. However, from March 2006 the amount will be based on the size of a company’s deficit and the level of risk involved. The PPF will increase protection for employees in the event that their company becomes insolvent and the pension fund is not sufficiently funded.