The UK’s Pension Protection Fund (PPF) has proposed a £100m levy estimate for 2025/26, the same as 2024/25, which, according to the lifeboat scheme, is the “lowest levy ever set”.
A six-week consultation launched today seeks shareholders’ views on the levy estimate and proposed approach to levy collection.
The PPF said that maintaining the levy at this level – equivalent to less than 0.007% of total defined benefit (DB) scheme assets – is consistent with the approach consulted on last year.
The scheme said that stakeholder feedback last year underscored the importance of ensuring the risk-based levy continues to be paid by a broad range of levy payers rather than allowing the levy to become concentrated on a smaller group.
It also highlighted the importance of ensuring the levy continues to be distributed in the most risk-reflective way possible.
It added that the proposed changes will alter the distribution of the levy but the impacts will be limited. The PPF expects schemes will pay broadly the same scheme-based levy as in 2024/25 and, of the 37% of schemes that pay the risk-based levy, most will see a decrease whilst only 5% will see an increase of more than 0.01% of liabilities.
By comparison with 2023/24 (when the levy was £200m overall), 95% of schemes will pay a lower levy in 2025/26, the PPF said.
David Taylor, executive director and general counsel at the PPF, said the fund will continue to engage with the government on legislative changes to enable the PPF to reduce the levy further “an even to zero”.
“We will keep progress on this under review and not charge for longer than we need,” he said, adding that the proposed changes to methodology will help the fund maintain the pool of risk-based levy payers, thereby spreading the levy more reasonably.
“More than half of those who pay a risk-based levy will see it decrease and there will be a marginal impact on those schemes who will see an increase. We’ve also acted on valuable stakeholder feedback to make it simpler for schemes to certify deficit reduction payments,” Taylor explained.
“I encourage stakeholders to respond, and we look forward to hearing views on our proposals,” he said.
Chris Ramsey, chair of the Society of Pension Professionals’ DB committee, acknowledged that the levy had reduced “substantially” over the past few years, however, he pointed out that it still stands at over £100m a year despite a “multi-billion-pound surplus” the lifeboat scheme has accrued.
“We believe that there is a strong argument for the PPF to further reduce the levy, potentially to zero. Unfortunately, the PPF is reluctant to do this as existing legislation prevents any annual increase beyond 25%, which might be needed if the PPF’s finances were to deteriorate,” he said.
He noted that given the government has already confirmed its intention to pass a Pension Bill next spring, it would “make sense” for this restriction on the levy to be lifted in that legislation. “This would enable a more sensible levy policy going forward, that doesn’t result in such an unnecessary collection of pension scheme money.”
Steve Webb, partner at LCP, agreed that the PPF should be allowed to lower the levy further.
He said: “The PPF levy has been cut substantially in recent years as the organisation’s financial position has improved. But now we have reached the ludicrous situation, driven by inflexible legislation, where PPF would like to cut the levy further but feels it would be irresponsible to do so.
“A simple change to the law would allow the PPF to scrap its £100m levy for next year confident that if things deteriorated sharply it could always be reintroduced.”
Webb also noted that the upcoming Pensions Bill would allow the government to amend the law so that the levy could be further cut next year “without undermining the financial stability of the PPF”.
The consultation closes at 5pm on 23 October 2024.
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