UK's PPF sets 2008-2009 levy at 675 mln stg

LONDON (Reuters) - Britain's Pension Protection Fund set its annual levy for the 2008-2009 financial year at 675 million pounds and expects it to remain at about that level until 2011, it said on Thursday.

Set up two years ago to protect the retirement benefits of staff in final salary pension schemes whose employers go bust, the PPF PPF.L, funded by levies on solvent company pension funds, has kept the levy at the same level as 2007-2008.

The levy will rise only in line with average wages until 2011 unless there is a significant change in risk faced by the PPF, which it regards as being unlikely.

The PPF has moved to setting a three-year levy from its previous annual funding figure to counter criticism from companies that they do not know how much they would be required to pay from year to year.

"This gives business and industry certainty over the overall cost of the PPF," its chief executive, Partha Dasgupta, told Reuters.

The PPF said it had sought to distribute payment of the levy more fairly across the 7,800 pension schemes under its remit, by raising thresholds at which well-funded schemes, which tend to be those managed by larger firms, pay little or no levy.

It raised the level at which schemes pay no levy to a funding level where a scheme's assets are 140 percent of its liabilities, from 125 percent.

It also raised the threshold at which schemes pay a lower levy to 120 percent from 104 percent.

As a result, Dasgupta said 80 percent of schemes would face a lower levy bill in the next financial year.

"We recognise that some of the larger schemes pose a greater risk to the PPF and they will pay a larger share of the levy bill," said Dasgupta.

Critics say the PPF is costly and penalises better funded pension schemes with conscientious company sponsors.

Business lobby group the Confederation of British Industry CBI.L gave the news a lukewarm response. "After two years of large rises, fixing the levy at 675 million pounds is better news. The aim must be to return the levy over time to the 300 million pounds the government originally promised," said Neil Carberry, CBI head of pensions and employment.

Three-quarters of schemes are likely to face a levy bill that is equivalent to less than 0.25 percent of their scheme assets, up from two thirds last year, said Dasgupta.

NO SUBPRIME IMPACT

The PPF sees no short-term impact on it from the subprime credit crisis, but Dasgupta acknowledged that a knock-on effect of a potential U.S. economic recession could be that more UK small and medium-sized businesses may go bust in coming years.

"The PPF is designed to take account of fluctuations in the economic environment," said Dasgupta

Some pension consultants argue that the levy has been set too low to build up a fund sufficient to pay claims against it in the future. But Dasgupta said: "We've always said we need to balance security for (pension scheme) members with affordability for those that finance us."

The current levy was roughly 275 million pounds higher than the claims it has seen in the first two years of its existence, while companies have put record amounts into their schemes to plug funding gaps in recent years, said Dasgupta.

The PPF estimates it has a 75 percent chance of accumulating a surplus of around 1 billion pounds by 2011-2012, based on charging a 675 million levy, said Dasgupta.