PPF delay hampers corporate planning

Changes to the Pensions Protection Fund procedures could leave companies
unable to budget properly, causing a major headache for FDs.

The claim was made by advisers at pensions, benefits and HR consulting group
Aon Consulting, which is calling on the PPF not to press on with a move to delay
setting the levy scaling factor until after the March 2007 deadline for
companies to pay their contributions.

The scaling factor is the figure the PPF decides upon to ensure it is able to
meet its future liabilities.

According to Aon, the PPF is considering setting the 2007/08 scaling factor
on 30 March 2007, rather than the several months’ notice given ahead of the
2006/07 deadline on 31 March 2006.While such a move would be a fillip for the
PPF, the change would make it far more difficult for companies and pension
schemes to plan for the impact of levies on finances.

Paul McGlone, principal and actuary at Aon Consulting, said: ‘The new
approach being suggested would clearly be beneficial to the PPF, as it would
give it far more certainty over the total levies collected each year.

The importance of this can be seen from the 2006/07 figures, where an
expected levy of £575m became an estimated levy of £324m, due to market
conditions and the actions taken by companies and trustees in advance of 31
March 2006. However, this certainty for the PPF would be at the cost of
uncertainty for companies.

‘It would mean that individual company levies could not be estimated in
advance,’ McGlone said. ‘This would play havoc with budgeting processes and
leave companies without the necessary information required to take decisions. A
company considering a cash injection into its pension scheme may reach a very
different conclusion, depending on whether the scaling factor is 0.5 or 1. A
move like this would go against the grain of the consultative and
business-friendly approach the PPF has adopted.’

According to CIMA, major companies in the UK currently have total liabilities
of approximately £750bn arising from their defined benefit pension schemes.

The issue continues to pose a significant challenge for many companies, with
particular emphasis on how they manage the risks that arise from their pension

These risks can prevent a company implementing its chosen strategy – ITV’s
£320m pensions deficit has caused a sticking point for NTL as news filtered out
about its proposed takeover last week.

Aon also spotted a number of errors when assessing invoices for 2006/2007.

McGlone commented: ‘To date we have spotted errors totalling millions of
pounds on behalf of our clients. It should be noted, however, that the vast
majority of invoices are correct. Some errors are understandable, given the
scale of the PPF’s operation and the fact that this is the first year that such
complex levies, with substantial data requirements, have been collected.

‘The PPF have an extremely difficult job to do. We would urge companies and
trustees to check their invoices carefully and raise any concerns directly with
the PPF or through the appeals process.’


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Glass act
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