Widespread pay freezes and cuts in wages paid by private sector companies should be properly reflected in proposed rises in the Pension Protection Fund (PPF) levy, says Occupational Pensions Trusts (OPT).

The 2010/11 levy is due to be kept stable at £700m, but OPT is adamant that including public sector pay rises from wage indexation calculations will pointlessly increase the burden on private sector companies who are already struggling to maintain defined benefit (DB) pension schemes.

"Official figures show that private sector wage growth was running at just over 0.3 per cent including bonuses in the year to April, far below the 3.6 per cent rise recorded for the public sector," explained Ben Shaw, development director at OPT. "The PPF gives the impression it is treading water on levy rises to help companies through troubled times. Taking a large levy does help narrow its growing fund deficit but also likely to lead to more employers collapsing."

Shaw also pointed out that the Confederation of British Industry (CBI) had raised the prospect of negative pay growth in the private sector in coming months [link to story], with half of companies planning pay freezes in the next 12 months and four per cent set to impose wage cuts.

He also questioned whether the 3.7 per cent levy rise last year when inflation was below zero, from £675m to £700m, was proportional.

"Every company will have to wait until the scaling factor is announced to know exactly how big their levy rise will be and the impact on their business," he concluded.

- Pensions Age June 2009

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