Pension Protection Fund, Croydon, England, set a 3.77 "scaling factor" multiplier for U.K. corporate pension schemes in fiscal year 2008-2009, up from 2.47 in fiscal year 2007-2008. The PPF reports 57% of schemes levies will rise as a result of the increased factor, while 42% will decrease.
CEO Partha Dasgupta said in a news release that the scaling factor takes into account significant volatility in scheme risk in the past 12 months. In the short term, we have seen scheme funding and insolvency probabilities improve, he said in the release. But, it is long-term risk that we have to protect ourselves against, particularly as we are now in the middle of a credit crunch which can only mean a lot more uncertainty for the future.
The scaling factor is an equalizer that allows the PPF to distribute its £675 million ($1.34 billion) levy proportionately to member plans based on pension risk and funding ratio. Its a secondary element in calculating an individual schemes levy; primary factors are scheme risk and asset size, according to the PPF news release. The PPF, similar to the PBGC in the U.S., protects British pension plans in the event of a collapse.
The move injects uncertainty into employers pension funding, said Jane Beverley, principal and head of research at actuarial Punter Southall, in a company news release. Some schemes could pay a levy 235% greater than what they had planned. Employers may well be wondering what has been the point of acting to mitigate their levy, when the benefits of their action are taken away by the PPF by its astronomical increase in the scaling factor, she said.