Firms to pay risk based pensions levy from 2006/7

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Companies with under-funded pension schemes or a high risk of insolvency will have to contribute more to the Pension Protection Fund (PPF) from 2006/7.

The PPF, which was launched in April 2005, compensates workers who lose their pension because their company goes bust. It is funded by an annual levy on companies with final salary pension schemes. The Pensions Act 2004 states that at least 80% of this levy should be 'risk based'. This week the PPF announced initial details of how the levy will work.

The risk based levy will be introduced as early as possible in the financial year 2006/7, and will be based on insolvency risk and scheme under-funding. However, the levy will be capped at a fixed percentage of liabilities to protect weaker schemes.

Insolvency risk will be measured by a credit age...

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