PPF Rebuffs Risk-Based Pension Insurance Levy

December 5, 2006 (PLANSPONSOR.com) - UK pension plans that favor potentially riskier investments will not get hit with higher insurance premiums to the Pension Protection Fund (PPF), regulators have announced.

The PPF said  it concluded the investment strategies of the majority of pensions differed so little that adjusting fees to take account of investment risk was unlikely to produce any significant shift of payments from one set of plans to another, the Financial Times reported.

For this reason the PPF turned aside the notion that those plans investing heavily in assets that do not move in line with their liabilities should pay higher risk-based premiums to the PPF.

“Critically, the board understands that investment strategies are broadly similar for most schemes and, given this and the scale of underfunding at present, that including investment risk would make relatively little difference to the pattern of levy charges as a whole,” the PPF said.

Currently 80% of premiums collected by the PPF and paid by employers are intended to be linked to the risk each scheme poses to the fund.

Those who oppose the current risk-based levy have said that by refusing to consider investment strategy and collect heavier premiums from plans with riskier investments, the PPF was encouraging riskier pension behavior.

The PPF’s report on the issue is  here .