The Pension Protection Levy Consultation Document
The Pension Protection Fund has been established to pay compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer on or after 6 April 2005, and where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation.
Compensation will be funded partly by the assets transferred from schemes for which the Pension Protection Fund has assumed responsibility, and partly by an annual levy raised on eligible pension schemes.
The Pensions Act 2004 prescribes that after a transitional period at least 80% of the pension protection levy (the levy) must be risk based, and that when setting the risk based levy, the Board of the Pension Protection Fund (the Board) needs to consider the level of scheme underfunding and the likelihood of sponsoring employer insolvency.
One of the main purposes of this consultation document is to outline the Board’s proposals for introducing the risk based levy during the financial year starting 1 April 2006, setting out the factors the Board will take into consideration when calculating the risk based element of the levy for eligible schemes.