Many pension schemes could make significant savings on their levy payments by carrying out a bespoke analysis of their investment risk, advises LCP. Following recently-announced changes to the PPF's levy framework, the firm is already working with clients to identify annual savings, which could run into hundreds of thousands of pounds for some schemes.
As an example, some schemes with a typical LDI strategy could see their annual levy payment reduce by around a third simply by performing a bespoke analysis of investment risk. Whilst schemes with LDI strategies stand to particularly benefit from the bespoke analysis, a much wider range of schemes can also save money in this way.
The bespoke analysis would be expected to consider a greater number of asset categories than the PPF's standard analysis of risk and, in many cases, this more accurate assessment will lead to levy savings. By adopting a streamlined approach to completing the bespoke analysis, LCP can provide trustees and scheme sponsors with information to ensure that the PPF levy calculation better reflects the investment risk being run by the scheme.
The announcement of the PPF's draft determination for the 2012/13 levy year signals the start of the annual cycle for many schemes, with preparation for the scheme return submission continuing through to early 2012 and invoicing expected in October 2012.
Adam Michaels, partner at LCP said: "We are urging trustees and sponsors of pension schemes to consider whether they are doing all they can to minimise their levy payment. Schemes with a material levy that use LDI funds or other derivative-based approaches could achieve significant savings by performing the bespoke analysis of investment risk. However, even schemes with long-dated gilts may benefit significantly."
"The streamlined approach to bespoke analysis that we have developed further supports our commitment to save our clients money through cost-effective advice."
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