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Latest round of PPF, more grief for SMEs

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Now that the Pensions Protection Fund (PPF) has almost tied down the changes to its calculation of the risk based levy for next year (2015/2016), Scottish SME’s should be bracing themselves for significantly higher costs for their legacy Defined Benefit (DB) or ‘final salary’ pension schemes according to a leading independent firm of actuaries. 

CalculatorGlasgow-based Thomson Dickson Consulting, has warned that although the expected total levy amount of £635 million to be collected is 10 percent lower than this year’s total, many SMEs will find themselves facing considerably higher costs.
The reason for this is that the PPF is expecting a significant redistribution of the levy with approximately one third of firms benefitting from a reduction, and 25 percent of schemes facing an increase. For those schemes expecting a higher levy, the average increase is 130 percent, more than double the 2014-15 levy amount.TDC director Andy Thomson said: “This could be seriously bad news for small and medium sized businesses.  The average levy this year for TDC’s clients was approximately £25,000. Applying the 130 percent average increase lifts the levy to nearly £60,000. This is an eye watering figure for most small schemes.’

“Legacy pension schemes are already expensive to service in terms of feeding the deficit and for some schemes, excessive admin costs.  Businesses do not need a further step up in costs of their legacy pension schemes as they recover from such a significant recession.”

This is the last year that Dun & Bradstreet is being used to provide failure score ratings for schemes’ sponsoring employers. Experian has been appointed by the PPF to deliver a new rating model for the 2015-16 levy year. Employers and trustees are encouraged to use the new Experian web portal to understand how the changes will impact their scheme. The new approach to rating employers applies over the period from 31 Oct to 31 Mar 2015 and this information can be used to estimate next year’s levy.Thomson continued: “By analysing our client’s invoices for the current year, we can see that more levies are going up than coming down.  One scheme with a zero levy last year is now faced with a £9,190 levy and another scheme has a levy four times higher than last year. This is seriously painful for a small company. The concern is that with the change from D&B to Experian, the situation will be even worse next year.”

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