By Daniel Hunter

The Pension Protection Fund (PPF) has announced that the pension protection levy estimate for 2013/14 will be £630 million.

This is the same aggregate amount that the PPF now expects to be collected for the 2012/13 levy year, some £80 million more that the original estimate of £550 million.

“We have seen pension scheme funding deteriorate significantly in the last eighteen months. We have seen that reflected in claims in the current year, which already exceed our annual levy,” PPF Chief Executive, Alan Rubenstein, said.

“Therefore, it should come as no surprise that this level of heightened risk would ordinarily result in a substantial increase in the levy estimate, up to the maximum permitted, particularly as our levy framework is designed specifically to respond to changes in risk of this nature.

“However, we are realistic and have listened. We know that many employers are still struggling in the continuing economic turmoil. That is why, exceptionally, we have set a levy estimate that means schemes will typically see levies at similar levels in 2013/14 as they will for this year.”

He added that, during the current year, there was a fall in the number of certified deficit reduction contributions (DRCs) and contingent assets — which schemes use to reduce their risk and therefore their levy bills. This reflects the further increase in risk which means that the PPF expects to collect about 15 per cent more for the 2012/13 levy year than its original £550 million estimate.

Mr Rubenstein warned that levy increases in future were inevitable if the current high risk conditions persisted. He said “People should bear in mind that, if our protection regime in the UK is to be credible, then it needs to be funded. The alternative, an inadequately resourced PPF, would fail to offer the security that pension scheme members deserve, and would strengthen the hand of those who argue for more radical measures to deal with risk such as the imposition of insurance style solvency requirements for pension schemes.”

The PPF published alongside its announcement a consultation document on its 2013/14 pension protection levy determination. In order to provide predictability, the intention is that the New Levy Formula will remain broadly unchanged until the next three yearly review. The results of the consultation will be announced in December, alongside a final confirmation of the levy estimate.

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