The Pension Protection Fund reduces cap on risk-based levy to 0.5%

The Pension Protection Fund (PPF) is to reduce the cap on its risk-based pension protection levy to 0.5% of liabilities.

It said the move will help protect 10% of the schemes which pay the PPF’s levy – an increase from the 5% of vulnerable schemes protected under the previous cap of 1%.

The PPF also confirmed that the 2010/11 levy will remain at £700 million, indexed to wages or £720 million.

PPF chief executive, Alan Rubenstein, said: “We announced in 2007 that we planned to keep the levy stable for three years and we have delivered on that commitment. We now want to help further ease the burden on employers and pension schemes during these difficult times for business.

“That is why, to help protect more of the most vulnerable schemes, we decided to reduce the cap on the amount of risk-based levy schemes pay. This means that these schemes will not pay a risk-based levy of more than 0.5% of their PPF liabilities.”

John Ball, head of defined benefit (DB) consulting at Watson Wyatt, said lower levies for the employers who are struggling most will be funded by other companies with DB pensions, few of which are awash with cash. 

He said: “After saying it wants levies to reflect risk more closely in future, it has decided to do the opposite in the short term. Employers who thought the PPF wanted them to try to maintain their funding levels as much as possible will wonder why they are being punished.”