Administration October 1, 2009

U.K. Pension Insurer Cuts Levies for At-Risk Plans

October 1, 2009 (PLANSPONSOR.com) - In an effort to reduce fees for the 10% of defined benefit plans it feels are most at risk, the U.K. Pension Protection Fund (PPF) decided the "vulnerable" plans will pay fees equal to 0.5% of their liabilities instead of the previous 1%.
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However, according to a Watson Wyatt report about the PPF fee announcement, the other, healthier, 90% of plans will have to shoulder higher fees because the agency has not changed the total amount of money it plans to raise. A PPF news release said 5% of at-risk plans were protected under the previous fee schedule.

“The PPF is presenting lower levies for the employers who are struggling most as an act of charity, but the money is going to come from other companies with defined benefit pensions, few of whom are awash with cash,” said John Ball, head of defined benefit consulting in a Watson Wyatt, in the news release. “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’re being punished.”   

PPF Chief Executive, Alan Rubenstein maintained in the agency’s announcement that the rate change actually represents good news for most employers. “Also, all schemes will pay less than they would have done if we had allowed the levy to rise to reflect the true level of risk we face,” Rubenstein asserted.

On a related issue, the PPF also announced in its news release that the charge to covered plans would remain at£700 million, indexed to wages (£720 million) as part of the PPF’s intention to keep the coverage charge stable for three years.

More information is available here .

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