Pensions industry urges for levy change as PPF halves 2024/25 estimate to £100m

The PPF made the announcement in its 2024/25 levy consultation, and has also launched a seven-week consultation seeking stakeholders’ views on the proposed levy estimate and its approach to future levy collection.

In its annual report and accounts earlier this year the PPF claimed it was in a strong financial position and its funding position had improved over the year.

Oliver Morley, chief executive of the PPF, said: “We were pleased to report another successful financial year in our annual report, and this has now been reflected in our proposal to further reduce the levy by half, taking the levy estimate down from £200m in 2023/24 to £100m for 2024/25.”

"Although the risks to the PPF are currently lower, particularly as scheme funding has strengthened, the consultation explains that the PPF’s governing legislation makes it necessary to continue to collect a levy to mitigate against any unexpected funding challenge."

PPF levy 'limitations'

The PPF pointed out that despite improved funding it could not reduce the levy further. This is because there is a legal limitation on any subsequent increases over 25 per cent.

Mr Morley added: “The current legislation was intended to protect levy payers from sharp increases in the levy; however, it also effectively constrains how low we can allow the levy to fall without damaging our ability to respond to a funding challenge should one arise.  We therefore plan to ensure the levy remains at or above £100m in future years.”

Out for consultation

The PPF said a small increase in the levy scaling factor was needed to achieve a levy of £100m in 2024/25, but it expected 99 per cent of levy payers to see their levy fall compared to the current year.

The PPF anticipated more substantial changes were likely to be necessary to maintain a levy of £100m in future years, if there was not to be an increasing burden on a declining group of schemes that continue to pay a risk-based levy.

The consultation, closes on 30 October 2023 and is seeking views on the proposals for 2024/25 but also on the options to distribute a £100m levy between schemes in future years.

Change in the law 'needed'

Pension consultancy LCP is urging for a law change to allow deeper cuts in the PPF levy.

Steve Webb, LCP partner and a former pensions minister said a change in the law would give PPF greater flexibility. 

“The PPF is a success story and its finances are now in robust shape. Whilst a proposed cut in the levy on employers from £200m to £100m is obviously welcome, it is clear that PPF would like to go further but is constrained by the law."

 “It is highly undesirable that PPF Is being forced to charge employers more than it needs to, simply because of the lack of flexibility to increase the levy again in future if needed.  The Government should change the law to allow deeper cuts now, which would be a boost to British industry without undermining the funding position of the PPF”.

Jaime Norman, senior actuarial director at consultancy Broadstone, agreed: “The PPF has been doing a good job in letting the industry know that it is looking for ways to reduce the PPF levy year on year and the consultation backs this up."

"Reducing the overall expected to be raised from £200m to £100m next year will be very welcome to many schemes."

 “It’s still frustrating that the overall levy could not be reduced further, reflecting improved funding positions, due to the legislative constraints that prevents the PPF from having full control over the levy it raises.”