PPF: Levies
The PPF is funded by a system of levies which are paid by all schemes eligible to enter the PPF (broadly, DB occupational pension schemes). The most significant is the pension protection levy.
Pension Protection Levy
The pension protection levy is used to fund the compensation payable to members of schemes where the PPF has assumed responsibility for the scheme. It is divided into two parts:
- Scheme-based levy (20% of the combined pension protection levy): It is calculated by taking into account the overall liabilities of a scheme that would be protected by the PPF and other factors, such as the number of scheme members.
- Risk-based levy (80% of the combined pension protection levy): It is calculated according to a formula which takes into account both the level of underfunding in a pension scheme and the risk that the sponsoring employer will undergo an insolvency event.
Schemes can also reduce the risk-based levy by entering into contingent asset arrangements. For further details see, Contingent Asset: Basics.
Additional levies
In addition to the above, there are two other minor levies, the administration levy and the fraud compensation levy.
The administration levy pays for the initial start up costs and ongoing administrative costs of the PPF. Schemes pay an amount per scheme member, which varies according to the total size of the scheme.
The PPF can raise the fraud compensation levy to pay for the Fraud Compensation Fund.
Commonly used abbreviations in pensions
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