On the go: The Pension Protection Fund has set its levy at £520m for 2021-22, which is £100m lower than the previous year.
In a consultation launched on Tuesday, the pensions lifeboat stated that it has been able to reduce the total levy amount due to its “strong financial position at the start of the pandemic” and to an update in the way scheme underfunding is calculated.
However, the document only sets PPF’s plans for next year and not for the next three-year period as usual, because of significant uncertainties caused by the pandemic.
This is due to the fact that the lifeboat might “see significant changes in our assessment of insolvency risk over the coming years”.
“If we attempted to set rules for a multi-year period now, that may lead to automatic and substantial increases in levies charged in subsequent years,” the document read.
The PPF is proposing two changes to help schemes and employers with the cost of the levy.
First, to better reflect small schemes’ risk, the levy for pension funds with less than £20m in liabilities will be cut in half, and the reduction will be tapered so that only schemes with £50m or more in liabilities will be charged in full, it stated.
This measure, resulting from work developed with the lifeboat’s SME Forum, will benefit around 2,000 schemes with small or medium-sized employers, it added.
Second, the cap on the amount of levy paid by any individual scheme will be cut from 0.5 per cent of that scheme’s liabilities to 0.25 per cent.
According to David Taylor, executive director and general counsel at the PPF, the current environment “makes setting an appropriate level for the levy particularly challenging”.
He said: “There is significant uncertainty about how claims and risks will develop so we’ve moved away from a multi-year approach to setting the rules. This means we can respond dynamically when setting the amount of levy we collect each year.
“In time, we’ll need to consider what further steps to take to ensure an appropriate levy in 2022-23 and beyond, alongside our review next year of the PPF’s funding strategy.
“But for now, we believe the changes we’re proposing for 2021-22 will provide valuable support to the schemes and employers.”
The levy consultation is open from September 29 to November 24.
