The Pension Protection Fund risk-based levy estimates will be published by the end of November this year, and introduced early in 2006. The first year's levy is to be based on scheme under-funding and insolvency risk, but will be capped at a fixed percentage of liabilities in order to protect weaker schemes.
The board have said that they will measure a scheme's level of funding by taking account of the difference between the value of its assets and its Pension Protection Fund liabilities. Insolvency risk will be measured using an estimate of the one-year probability that the sponsoring employer will go into liquidity. Once the levy estimates have been published in November, there will be another 4-week period of consultation.
Our view
We have already seen employers and schemes that have waited for the PPF to be formed before deciding to close and 'dump' pension cost liabilities on the rest of us!
We expect the levies to not be low as people abuse the position.