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back to index backEUROtalk March,  2005

UK Government raises taxes on pension plans

The U.K. government has issued draft regulations increasing various levies, or taxes, on company sponsored pension plans.

General levy

The general levy is a tax on pension plans to cover the costs of U.K. pension authorities and varies according to the number of members. It's been doubled for the year beginning April 2005. For example, the cost for an occupational plan with 15,000 members will rise to just over £11,000 (€16,000, $21,000).

Pensions Protection Fund (PPF) levies

These are three new taxes to be paid by defined benefit plans (including hybrid plans) and will be introduced starting in April 2005:

Administration levy. For the plan year beginning in April 2005 this will be at the same rate as the general levy.

PPF Ombudsman levy. Zero for the plan year beginning in April 2005, but we expect it will need to be raised in the future once officials begin responding to cases that come to their attention.

Funding levy. This is required to cover any funding shortfalls of plans transferred into the PPF. The initial amount payable for the year beginning April 2005 will be a flat rate per member: £15 (€22, $28) for active employees and current pensioners, and £5 (€7, $9) for former employees not yet retired.

In future years no more than 20% of the funding levy may be calculated as a flat rate, with the rest based on levels of plan underfunding and other risk-related factors. Plan sponsors may wish to assess how to minimize the impact of the levy by reviewing the levels of risk in their plans and the funding level relative to the PPF requirement. The initial funding levy is unlikely to be high enough to secure the PPF's liabilities over the long term, and sponsors of U.K. defined benefit plans can expect this cost to increase in future years.

Source: Towers Perrin - GAI

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