The lifeboat fund is in discussions with the government about new powers to reduce industry levies to zero given its strong funding position.
The defined benefit (DB) lifeboat fund launched its latest levy consultation in September seeking to raise £100m from eligible pension schemes.
However, given the PPF’s £14bn funding surplus, the organisation has admitted that it does not need to raise a levy at all – but current rules prevent it from reducing the levy to zero.
In a statement, the PPF said it had been “working closely” with the Department for Work and Pensions (DWP) to discuss the legislation needed to allow the PPF to reduce the levy to zero while retaining the ability to increase it again in future if required.
Kate Jones, chair of the PPF’s board, said: “The board is grateful to those who responded to our consultation and for the chance to openly engage with other key stakeholders. We need to balance the needs of all our stakeholders with our financial responsibilities and have been actively considering a wide range of options.
“To allow more time for this work, including engagement with colleagues at DWP, the board will conclude its decision on next year’s levy in January.
“We recognise the need to minimise uncertainty for levy payers but trust taking the time to get this right will be viewed positively. Ultimately, we don’t want to charge the levy for any longer than is needed and are working towards this goal.”
The current rules governing how the PPF levy is set mean that, if it was to reduce the levy to zero, it could not then reinstate a levy in future if its funding position worsens or a major claim is made. Currently, annual increases are capped as a percentage in order to protect employers from excessive cost hikes.
‘Glimmer of hope’ for reduced levy
The Pensions and Lifetime Savings Association (PLSA) welcomed the PPF’s “pragmatic step” in delaying its decision.
Zoe Alexander, the association’s director of policy and advocacy, said: “It is very positive the PPF has decided to hold back its decision to set the levy defined benefit pension schemes pay to support its operation.
“This is at a time when pension funds are being asked to increase investment in productive assets and sponsoring employers are facing higher costs due to the increase in employer national insurance contributions.”
Consultancy group LCP said modelling had shown that levy funding was “unlikely to be needed to meet future PPF liabilities on most assumptions”.
Steve Webb, partner at the firm, said: “It is an absurd situation that a law designed to protect employers actually means that the PPF has to be cautious in cutting the levy even when it could afford to do so.
“The fact that a decision has been delayed suggests that things may be moving in the corridors of power and a more rational set of rules could be coming. This offers employers a glimmer of hope that a zero PPF levy might not be far away”.
All eyes on the Pension Schemes Bill
The Society of Pension Professionals (SPP) – which has been a leading voice in lobbying for changes to the PPF levy – said the delay was a “step in the right direction”.
Chris Ramsey, chair of the SPP’s defined benefit committee, said: “The annual levy is money that the PPF readily admits it does not need because of its multi-billion-pound surplus.
“If a legislative change can be secured in the 2025 Pension Schemes Bill, this would mean pension schemes would no longer have to bear an unnecessary £100m annual cost, and this money could instead be used to help members, employers and the wider economy.”
Morten Nilsson, chief executive officer at Brightwell, the primary services provider to the BT Pension Scheme, added that it “cannot be right” that levies are still charged on schemes and sponsors while the PPF is operating with a substantial surplus.
“Urgent legislative reform is needed to allow the PPF greater flexibility in setting the levy, and to allow for a zero levy,” he said. “We hope to see this in the forthcoming Pension Schemes Bill.”
What to do with the PPF’s surplus?
Joanne Shepard, director of retirement at WTW, said the PPF “should already be charging much less than it is”, adding that “the priority must be to get levy bills down”.
“If zero levies are presented as one side of the coin and improved PPF compensation as the other, levy payers may feel hard done by and want some money back.” - Joanne Shepard, WTW
The PPF has previously maintained that £100m was the minimum it could charge without compromising its ability to raise the levy quickly in an adverse scenario, but Shepard claimed that there was flexibility in the current legislation allowing the lifeboat fund to charge a lower “nominal” levy.
She also called for the government to consider potential levy refunds given the size of the PPF’s surplus.
“The PPF says it would welcome the government looking at bigger increases to PPF compensation, and the government should turn its attention to how and when funds that the PPF does not need should be distributed,” Shepard said.
“However, if zero levies are presented as one side of the coin and improved compensation as the other, levy payers may feel hard done by and want some money back.”
