Rocketing pensions levy on business could damage UK recovery
21/09/09 | 15:10
Ahead of the first meeting of the Pension Protection Fund (PPF) steering group on the future of the PPF levy, the British Chambers of Commerce publishes new research highlighting the serious problems the levy is causing for firms that offer Defined Benefit (DB) pension schemes.
The original amount the PPF levy collected from companies with DB schemes was £300 million per year. However, this was raised dramatically to £675 million in 2007/8, and now the figure stands at an astonishing £700 million. As a result, many firms are finding the levy far too punishing a cost, especially during an economic downturn.
The BCC argues that businesses do not have to offer the more generous DB scheme, but they do so to show they value their employees. There is now a real danger that the levy could force DB schemes to close at an even quicker rate, and that businesses could even become insolvent as a result.
The business group recommends that the levy for 2010/2011 should be suspended immediately, with wholesale reforms required in the medium to long-term.
Commenting, David Frost, Director General of the British Chambers of Commerce, said:
“We are deeply concerned by reports of large and unexpected increases in the PPF levy, which threatens to undermine the viability of many businesses. There is a risk that with DB schemes closing fast, the pensions gap that already exists between the private and public sectors will be even greater.
“The levy needs to be responsive to the economic situation. We cannot lose productive businesses offering good retirement benefits because of this levy. This could hamper the private sector’s ability to drive the UK out of recession and into a sustainable recovery.”
Peter Heginbotham, President of Greater Manchester Chamber of Commerce, added:
“The PPF levy is deeply flawed and risks undermining otherwise healthy businesses. In Manchester, many businesses have been severely affected by it. We are calling for reform to make the levy more predictable, more transparent and less burdensome for struggling businesses. This will help companies get through unprecedented economic times - while honouring their own pension obligations - and stop them from being forced unfairly to cover the obligations of others as well.”
Click here to download a copy of the full report in PDF format>>
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Media Contact:
Sam Turvey
Tel: 020 7654 5813
Email: s.turvey@britishchambers.org.uk
Notes to Editors:
The PPF was created to protect employees’ pensions should a company offering DB schemes go insolvent. The fund is generated through a levy on those companies offering DB schemes.
Defined Contribution (DC) - schemes where the contribution is defined but not the benefit. The benefit is dependant on investment decisions and what annuity rate is available when the member retires. These schemes do not contribute to the PPF.
Defined Benefit (DB) - also called Final Salary schemes. The retirement benefit is based on salary or a pre-determined formula. These schemes do have to contribute to the PPF.
According to Pricewaterhouse Coopers, 96% of businesses believe their DB schemes are unsustainable.
Case studies are available on request.
One business member in the motor industry has seen their financial commitments to the levy increase from £8,000 to £48,000 in just one year. The firm now faces a real risk of insolvency. Another firm is unable to make the essential capital investment needed to grow the business because of the unpredictability of the levy.
The British Chambers of Commerce (BCC) is the National Voice of Local Business.
The BCC sits at the heart of a powerful nationwide network of Accredited Chambers of Commerce serving business across the UK, which employ over five million people.