28 August 2008
The Occupational Pensions Trust (OPT) has stated that they find
fault with the proposals to change the Pension Protection Fund's
(PPF) risk-based levy. The OPT believes that the changes could
possibly be damaging to pension scheme funding levels.
The fear is that changes to the levy would encourage schemes to
move to lower risk asset allocations, in turn leading to lower
returns, and thus increasing the chances of schemes falling into
deficit and hence turning to the PPF.
The director of development at OPT, Mr Ben Shaw, said: "It
appears the PPF may pursue plans to also take a scheme's investment
strategy into account for future levy assessments, the premise
being that higher-risk assets merit a higher levy.
"Giving up this potential for dynamic growth could inadvertently
keep more schemes permanently on the sick list."
The OPT fears schemes would end up in a 'catch-22' situation;
choosing a high risk growth-oriented investment strategy would
result in a higher levy, whereas the alternative of less volatile
allocations would increase the risk of scheme failure.
Shaw added: "Removing volatility also removes growth potential,
and with it the prospect of a scheme ever moving back into
financial health through its investment performance. Strangling
growth is likely to see more schemes eventually falling into the
PPF, raising the levy further."
Partha Dasgupta, chief executive, PPF, commented: "The PPF is
not in the business of trying to influence the investment
strategies of relevant pension schemes. We believe that a scheme's
investment strategy is a matter solely for the scheme's trustees
and its sponsoring employer.
"What we are doing is considering how we might better reflect
the long-term risks we face when calculating the pension protection
levy paid by eligible schemes. One way of doing this may be to give
credit to those schemes that have taken steps to de-risk their
investment strategies."
Dasgupta said there were more ways for funds to manage risk than
simply moving from equities to bonds. Mr Dasgupta added that the
PPF would consult stakeholders on the future levy in autumn.
