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Law360, London (January 27, 2021, 3:35 PM GMT ) The U.K.'s pensions lifeboat scheme has halved the levy it will charge on small pension schemes, in a bid to ease the burden on employers hit by the economic effects of the COVID-19 pandemic.
The Pensions Protection Fund confirmed Tuesday that saving plans with liabilities of under £20 million ($27 million) would be covered by a new "small scheme adjustment" which will become a permanent feature of the levy.
The PPF, which provides a safety net to long-term savers if sponsoring employers go out of business, will introduce the measure in its levy on schemes for the 2021-2022 year.
David Taylor, executive director of the PPF, said the change would "ensure the levy better reflects the risk posed to us by smaller schemes and to support schemes and employers affected by the COVID-19 pandemic."
The total levy on companies that sponsor defined benefit pension schemes will fall to £520 million for the year, down from the £620 million which has been levied for the period 2020-2021, the PPF said.
The PPF said that small schemes were likely to have "more volatile levy bills" and may have been paying too much.
"This would be justified if the risks presented to the PPF were that much higher," the lifeboat scheme said in its policy document. "However, we had concluded that there were a number of ways whereby risk may in fact be overstated in our calculations."
The lockdown early on in the pandemic has battered many companies, with trade credit insurer Atradius predicting at the start of September that insolvencies will rise by 27% this year in the U.K.
The PPF said it also expected a rise in corporate failures, but that wouldn't likely materialize in terms of growth in compensation claims until the following levy year.
"The worsening in insolvency scores that we predict means that, other things equal, the total levy estimate might be expected to rise in 2022-[20]23," it said in a consultation document on the levy, published in September.
--Editing by Alyssa Miller.
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