UK - Calculation of the Pension Protection Fund (PPF) levy should be changed so schemes can rely on specific estimates for a number of years, a steering group recommended.
The PPF set up an industry steering group - focused on the lifeboat fund's levy structure - last year.
Its report said it was "critical to the steering group's thinking" that changes in a scheme's bill ought to derive primarily from changes in its risk, not from others' risk. Therefore, it should be possible to estimate a scheme's levy for a number of years.
The group - which included Association of Consulting Actuaries chairman Keith Barton, BP Pension Trustees chief executive Sally Bridgeland and National Association of Pension Funds chief executive Joanne Segars - also made recommendations about the levy formula.
It said suggested changes to the levy could result in it remaining stable for several years.
The group said schemes currently saw the levy as unfair because of its unpredictability.
It said: "Currently a scheme can see its risk fall and its levy rise. For the system to be fairer, schemes should pay a levy that reflects their own risk characteristics."
The group said it should be externally benchmarked, subject to consultant and could include:
• employer covenant - measured to a degree of accuracy supportable by evidence;
• scheme funding;
• investment strategy - provided this is able to take account of the range of strategies used by schemes; and
• the benefits of risk reduction, such as contingent assets, and deficit reduction contributions.
It also suggested the PPF consider extending the risk characteristics to include:
• governance; and
• funding strategy.
PPF chief executive Alan Rubenstein said: "I would like to take this opportunity to publicly thank the members of the steering group for their invaluable contribution on this complex issue."
Meanwhile, consultant Barnett Waddingham released research showed almost three quarters of pension scheme trustees and advisers believe the PPF should not be funded solely by a levy on pension schemes without any government funding
The majority of pension professionals also thought the government needed to become the ultimate guarantor of the PPF. The importance of being able to plan ahead was also highlighted, with the majority of respondents stating that the stability of the PPF levy is more important than the absolute amount they are asked to pay each year.
Partner Nick Griggs said: "There appear to be some concerns about the way the PPF is funded. Its ever-increasing liabilities are becoming an unbearable burden on the declining number of eligible schemes.
"It is becoming apparent that there needs to be some alternative ways of supporting the protection afforded to scheme members or for the level of benefits provided by the PPF to be reviewed."
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