Experts predict sharp rise in pension fund levy

Employers could be forced to pay much higher levies into the Pension Protection Fund (PPF), despite lower than expected claims from failing pension schemes this year.

The PPF’s first annual report revealed that the fund now expects to collect £324m from employers this year, compared to its original estimate of £575m. Claims by 98 pension schemes also fell below the expected long-term average.

The exact amount each company has to pay will depend on how well they have funded their own schemes. British Airways, which has an estimated £2.1bn pension deficit, has been hit with a £5.15m tariff for the year, while food manufacturer Tate & Lyle has been charged £83,000 on its £77m deficit.

However, Lawrence Church­­ill, PPF chairman, has admitted that the levy was not representative of the true rate of risk.

“We didn’t want to overburden business by charging the true rate for risk in the early years – we want to encourage and incentivise businesses,” he said.

Pensions experts have taken this as a warning that levies may have to increase sharply over the coming years.

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Stephen Yeo, a senior consultant at Watson Wyatt, said: “Employers and trustees will be concerned not only that the levies they have to pay will rise in future years, but that they have no idea of the extent of any increase.”