New report says pensions levy system is flawed, Times Online 29 September 2005

A new paper by by Anthony Neuberger, of the Warwick Business School, and David McCarthy, of the Tanaka Business School at Imperial College argues that the pensions levy system is flawed.

Pensions fund remains unfair - Patience Wheatcroft, Times Online 29 September 2005

PROTESTERS staged a mock mooning on Brighton beach this week to demonstrate their resentment over the loss of their company pensions because of the collapse of the companies themselves. The protesters are waiting for compensation through the Financial Assistance Scheme, although it is apparent that it is already woefully underfunded.

The Pension Protection Fund (PPF), trumpeted at the Labour conference as the Government’s way of ensuring that corporate collapses will not leave pensioners unprovided for, also looks to be heading for financial meltdown.

It seems Turner & Newall’s scheme is close to being tipped into the PPF, bringing with it costs that could top £125 million. Yet it is only the biggest in a queue of funds lining up to be bailed out by corporate colleagues. The estimated cost to business has already doubled from £300 million to £600 million. But there are some who doubt whether, in its current design, the PPF is workable.

A new paper argues that the levy system, which collects proportionately more from weaker funds and less from stronger ones, is flawed. It claims that, if the weaker funds do pay the levy, it will be at the expense of topping up their ailing pension funds — so it risks quickening their arrival in the PPF.

The paper — by Anthony Neuberger, of the Warwick Business School, and David McCarthy, of the Tanaka Business School at Imperial College — is a response to the Pension Protection Levy consultation. It risks drawing the wrath of those companies that have better-funded schemes and are already angry about being forced to pay a levy towards supporting the funds of companies that have been less prudent. The suggestion that the levy should be tilted so that a higher proportion of the burden falls on them would persuade some companies that they should try to exempt themselves altogether by winding up final salary schemes.

But bailing out pension schemes that may have been underfunded for many years is an expensive business. According to Mr Neuberger, either the taxpayer will have to do it or business will.

It is logical that stronger businesses will be in a better position to do this than businesses that are struggling, and have been given the thumbs down by the ratings agencies that will be pivotal in determining the risk-based element of the levy. It would not, however, be seen as anything like fair.