PPF to cut levy as it concludes strategy review

The Pension Protection Fund (PPF) is set to “significantly reduce” its levy as it finalises its strategy review which has concluded the fund is entering a new phase in its funding journey.

The fund has today published the outcome of its Long-Term Funding Strategy review and announced in its 2023/24 levy consultation – which conlcudes 10 November at 5pm UK time – that it expects to collect £200m in levy next year, nearly halving that collected in the previous year with a reduction of £190m.

“The funding review recognises that the PPF’s financial position has significantly strengthened in recent years, driven principally by strong investment performance, and a reduction in risk posed to the fund,” it announced.

“As a result, the PPF is making a step change in its approach and entering a new phase where the focus will shift from building to maintaining its financial resilience.”

As its funding approach matures, the PPF has set out fresh funding priorities and a revised funding objective that will be assessed through a new ‘Financial Resilience’ test.

To meet this target, the PPF’s reserves must provide a high level of confidence on the security of members’ benefits without relying on levy. Once funded above this level, any further growth in reserves would be expected to come primarily from investment returns, although the PPF board will continue to consider the role of levy against any changes in the wider economic backdrop.

Oliver Morley, the PPF’s chief executive officer, said: “We’ve made rapid progress on our funding journey in recent years and are further ahead at this point than we expected to be, largely through the excellent performance of our investment approach. We are close to achieving our Financial Resilience target, meaning we can now start to actively take steps to bring down the levy without risking current and future members’ benefits.”

He said this move would hopefully help schemes use the reduction in their levy payments to strengthen the position of their own scheme and improve the outlook and security for their members.

“This prospect of a materially lower levy collection in the future also presents us with a rare opportunity to simplify how the levy is calculated. We believe a simpler levy would bring benefits for all stakeholders,” Morley added.

Responding to the PPF’s announcement, Joe Dabrowski, deputy director policy at the Pensions and Lifetime Savings Association (PLSA), said: “The PLSA has previously called for a lower levy in response to increasingly high levels of PPF surplus and so we welcome the Pension Protection Fund’s announcement that is able to significantly lower its levy as a result of the success of its long-term funding strategy.”

He noted that the PPF’s decision today to announce a reduction in its levy underlines the PLSA’s assessment that, despite recent market difficulties, pension funds remain well-funded and a secure home for savers’ pensions.

“It’s very positive that the PPF is in such a strong place, given its important role in the sector and the wider economic challenges we currently face,” Dabrowski added.

Emily Sturgess, head of PPF solutions at XPS Pensions Group, said: “The changes proposed by the PPF today will result in reductions to both risk-based and scheme-based levies for many schemes. However, there are still some schemes, particularly those with deteriorations in insolvency risk scores or those who benefited from the risk-based levy cap introduced last year, who may still see an increase in their levies.”

She said that employers and schemes should consider what actions they could take now, as acting early can help schemes ensure they pay the lowest possible levy next year.

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