Pension Protection Fund - ACT Response

The ACT is pleased to be able to comment on this important topic. We have had an exceptional number of sometimes quite lengthy comments from members (often showing considerable strength of feeling) during our preparation of this response.

Mandatory scheme

The PPF levy is a mandatory scheme for risk insurance whereas companies normally have discretion about how to manage or finance risk. It could be portrayed broadly as an impost on well funded schemes and high credit rating sponsors in favour of badly funded schemes and weak sponsors – a subsidy to their labour costs, artificially benefiting their competitive positions. It is thus very important that it is made as fair as practicable.

Subsidies

The scheme has explicit elements of cross-subsidy – designed to reduce the impact on weaker sponsors of less well funded schemes and to avoid pushing them towards insolvency:

• The cut-off on gradation of under funding at 104%
• The cap on insolvency probability (proposed at 15%)
• The individual risk-based levy cap (discussed at 3% of liabilities).

This is in addition to the 20% scheme-based element which, making no distinction between well funded schemes from strong sponsors and schemes not so strongly placed, contains a significant cross-subsidy element.

Such a transfer of resources from well run to less well run or less fortunate businesses should be made explicit in a transparent way monitorable by parliament and funded through general taxation. The value of the subsidies should be charged not to other scheme sponsors but to HM Treasury which could recover it from benefiting scheme sponsors on deferred terms. This would reduce moral hazard, further incentivise sponsors and reduce the advantaging of companies which have for one reason or another under funded their schemes.