UK - The Pensions Protection Levy (PPL) could force small employers to go under, Punter Southall has warned.
In response to the PPL Consultation, Punter Southall also branded the proposal to adjust MFR calculations to estimate solvency on a s179 basis as “impractical”.
Punter Southall senior technical consultant Jane Beverly said that, while there were, “certain sensible principles” embodied within it, certain areas remained problematic. “For one, more cross-subsidy between the stronger and weaker schemes would be better.”
Affordability was a key issue, particularly for poorly funded schemes sponsored by small to medium sized employers with a poor credit score.
According to Punter Southall, this is especially true as the new Scheme Specific Funding (SSF) requirements are expected to lead to a higher level of company contributions being paid. Beverly said there was a real possibility small employers could go under in trying to pay the levy.
As a result, combining the impact of SSF with the requirement to pay a significant levy is likely to push more schemes into the Pension Protection Fund.
Beverley said another key area of concern was the proposal to adjust MFR valuations to estimate solvency on a s179 basis, which she described as impractical.
Actuarial calculations are complex, and it is time-consuming to adjust results from one basis to another - and from one effective date to another.
As a result, Punter Southall suggested there was a potential for moral hazard in allowing schemes to submit s179 valuations by 31 December 2005, as suggested by the PPL, which needed to be addressed because the information requested on scheme return forms would not enable sufficiently accurate adjustments to MFR valuations to ensure a playing field between those schemes using s179 and MFR.
The beginning of April, 2006, would be more ideal, said Beverly.
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