In a unique move to reflect the risk associated with different investment strategies, the Pension Protection Fund (PPF) has disclosed that the new levy framework will incorporate the investment risk of a scheme’s portfolio.
The new levy framework due to come into effect in 2012/13, will ‘reflect more closely’ the levels of risks associated with different investment strategies for the retirement fund.
Once the charging regime is fixed, it will remain effective for three years to allow pension schemes calculate their levy structure more comprehensively. However, the levy structure can change if the inherent risk characteristic of a scheme changes.
The PPF also proposes to minimize levy payment volatility during stock market fluctuations and smoothen its scheme funding.
The PPF has also proposed 10 insolvency ratings bands to reduce concerns over ‘cliff edges’, where funds witness large levy spikes. The new proposal, which has four more bands than previously suggested, will be helpful in assessing the probability of schemes becoming insolvent with a year.
“This marks a significant milestone on our journey to construct a levy which is fit for purpose in the long-term”, said PPF chief executive Alan Rubenstein.
“We are now embarking on the second leg of our journey – making sure the framework is implemented successfully”, he added.