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Employers call for changes to UK pension lifeboat levy

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Businesses and advisers have called for the reform of the rules governing the annual levy that the UK’s pension lifeboat fund charges employers after the scheme’s surplus ballooned to more than £12bn.

The backlash comes as the Pension Protection Fund (PPF), which is designed to protect members of defined benefit pension plans if their sponsoring employer collapses, has proposed cutting the total amount it collects from companies to a record low of £100mn next year. The consultation closes at the end of October.

But some executives believe the charge levied on 5,200 pension plans is still excessive given the level of the scheme’s reserves of more than £12bn, which have built up owing to a combination of fewer than anticipated claims and good investment returns.

Charles Smith, chair of Shoe Zone, the Aim-listed high street retailer, which has 1,500 employees, called for changes to the rules that limit the flexibility the PPF has to vary the levy every year.

“We don’t mind paying a levy to protect people’s pensions but this is a genuine cost for businesses and we feel that being charged an unnecessary amount due to the way historic legislation is drafted is clearly unfair,” he said.

The PPF, which has £39bn in assets, said its rules meant it was in effect constrained in further reducing the levy irrespective of the state of its own finances because it is limited by law from increasing the levy by a maximum of 25 per cent year-on-year. This potentially exposes it to risks in bad years if it cut the levy too far.

Oliver Morley, PPF chief executive, said that in “future years” he expected to maintain the levy around the £100mn level given those restrictions. But he pointed to a recent government review that called on ministers to consider changing the rules.

The government said in a statement it was considering the recommendation that the levy “can be reduced easily” while ensuring the PPF’s board retains the freedom to reintroduce or raise the levy again should circumstances change.

Alan Towns, chief executive of Knightsbridge Furniture Productions, an 85-year-old furniture manufacturer based in Bradford, said the levy was “a significant cost for us and paying an excessive amount reduces our ability to grow and invest.”

Jon Sharp, director of Western Pension Solutions, which advises businesses on pensions, said it was “ridiculous” businesses were still having to pay a levy given the PPF’s surplus.

Jaime Norman, senior actuarial director at consultancy Broadstone, said the PPF was in an “awkward position” given its financial strength. “Employers will think it perverse that they continue to be asked to pay a . . . levy, albeit a reduced . . . levy, when even the PPF says that it’s not required.”

Steve Webb, a partner with actuarial consultancy LCP and a former pensions minister, agreed reform was needed. “The government should simply change the rules which would free up the PPF to make further cuts in its levy”.

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