The Pension Protection Fund (PPF) has lowered its levy to £45m (€54m) following the Department for Work and Pensions’ (DWP) announcement that the UK government will consider giving the fund more flexibility to reduce its levy.

The move will support defined benefit (DB) schemes and their sponsoring employers to drive economic growth.

In December the PPF put its decision to keep its levy at £100m on hold until January to allow more time to consider a “wide range of options” including engagement with the DWP to inform its approach to finalising plans for the 2025-26 levy.

This morning, the DWP confirmed that the UK government is considering proposals to allow the lifeboat greater flexibility to reduce the levy it collects from pension schemes by relaxing restrictions which it believes will unlock “millions of pounds” for schemes and sponsoring employers to invest in their businesses and grow the economy.

The announcement builds on the government’s planned reforms to unlock “billions” in surplus from DB pension schemes.

As a result, the PPF board has acted to more than halve its levy estimate to £45m – a significant reduction on the £100m initially proposed, making it its lowest-ever levy.

The PPF has also included a new provision in its levy rules which would enable the board to calculate a zero levy if appropriate changes that would give the PPF greater flexibility in setting the levy are brought forward and sufficiently progressed in the course of 2025-26.

Kate Jones, PPF chair, welcomed the government’s intent to give the lifeboat more flexibility to reduce the levy.

She said: “Levy payers have long made a vital contribution to the PPF’s funding. We ultimately don’t want to charge levy payers any more than we need. This positive announcement is an important step towards that end goal.”

Torsten Bell, UK pensions minister

Torsten Bell, UK pensions minister

Minister for pensions Torsten Bell said: “The Pension Protection Fund is an important safety net for many pension savers. It is also one in a strong financial position, so it is time to change outdated rules that would force the PPF to levy pension schemes unnecessarily.

“This will free up funds that allow pension schemes or employers to invest, supporting savers and growth.”

Bell added that this proposal, in addition to the government’s plans to “unlock billions of surplus from defined benefit pensions schemes” shows a “laser focus” on making the long-term changes to grow the UK economy.

Positive step

The announcement was welcomed by consultants who have long argued for a reform of the PPF levy rules, claiming that with £13bn in surplus, the PPF’s ability to withstand claims is unquestionably secure.

David Hamilton, chief actuary at Broadstone, added that it feels “counterintuitive” to continue to take £100m in levies to further increase surplus assets when the money could be used to directly improve pension scheme funding or allow greater investment by employers.

He said: “We strongly encourage the DWP to move swiftly to give the PPF flexibility over its levy so that it can be reduced all the way to zero.”

Former pensions minister and partner at LCP Steve Webb said the move will reduce costs for pension scheme sponsors without undermining the financial position of the PPF.

“We had reached an absurd situation where PPF had to continue with a levy that it did not need, simply to protect its future options. Provided that this change goes through, we can expect to see levy bills fall, which will be a welcome boost to companies who sponsor DB schemes,” he added.

Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Savings Association (PLSA), also welcomed the announcement, saying it is “really good news” for DB pension funds and their sponsors.

She said: “The strong signal of intent from the government to change the rules to allow the PPF more flexibility to reduce the levy further suggests a solution could be included in the upcoming Pension Schemes Bill.”

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