The Pension Protection Fund (PPF) will formally consult on plans to set a pension protection levy estimate of £600 million for 2011/12, a reduction of £120 million from the previous year.

According to the PFF, this move is a response to government plans to increase PPF compensation in the future in line with the consumer prices index (CPI) rather than the retail prices index (RPI). These proposals are also currently subject to consultation.

Alan Rubenstein, chief executive at PPF, said: “We concluded that, if the government CPI proposals are implemented, we could reduce the levy to £600 million – a move which will benefit levy payers during what are difficult times economically but still protect our own financial position.”

He also added that the PPF’s consultation will address a number of technical issues for the 2011/12 levy, including: changes to the levy cap which protects the most vulnerable of schemes; the funding levels at which schemes will pay a reduced levy, or no levy at all; and the levy scaling factor which schemes use to calculate their individual levy bills.

Nick Griggs, partner at Barnett Waddingham, added: “It is encouraging news that the PPF is going to recognise the move to CPI and has reduced levies accordingly.

“Some well funded schemes could see a massive percentage increase in the risk based portion of their levy because of the increase in the funding level against which underfunding risk is assessed.

“While these changes will ensure that levies are distributed between schemes in similar proportion to last year it does raise questions about whether the distribution is fair. Shouldn’t schemes that have seen their financial position improve such that they now pose very little threat to the PPF see a reduction in levy. Should they really be paying any risk based levy at all? Under these proposals they could see an increase in their levy.

“The PPF has stated that it has made various changes over the last few years so that schemes are better able to plan for their levy. How can schemes plan when the PPF make fundamental changes like altering the funding level against which the underfunding risk is measured after the 31 March 2010 when the PPF funding level and D&B scores are set. Schemes will have taken decisions based on the existing rules and this change would have altered decisions they will have made.”

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