The Pension Protection Fund will conduct a full review of its levy methodology calculation over the next three years — with the goal of reducing scheme payments — as part of a revised funding strategy.
The pensions lifeboat commitment is part of its strategic plan 2022-25, published on March 31, where it pledges to undertake a stakeholder engagement programme to support its funding strategy review, which will occur this year.
If its funding position “remains robust over the three-year period”, the PPF will look to reduce how much levy it collects from schemes, “whilst still charging an appropriate levy that reflects the level of risk”, it stated.
As part of this, the PPF stated it will “identify where legislative change would be helpful to give us more flexibility in charging the levy in the future”.
Over the course of the next three years, we’ll continue to invest in, and improve, services to our members and levy payers so we can sustainably deliver high levels of satisfaction and remain as efficient as possible
Oliver Morley, Pension Protection Fund
In 2022-23, the PPF will collect £390mn from its levy payers, which is £130mn less than the previous year.
However, the pensions lifeboat introduced a one-off limit for this year only to ensure individual risk-based levies do not increase by more than 25 per cent when compared with 2021-22, in order to support the minority of schemes that did not see a reduction in their levy bill.
The levy charged on eligible schemes, which is responsible for 23.1 per cent of PPF’s funding, will be the target of a full calculation methodology review during the next three years.
The goal is to “make sure our approach fits with our revised funding strategy and to identify opportunities for simplification”, the lifeboat added.
PPF looks to limit FCF levy burden
On the Fraud Compensation Fund, the PPF has committed to “work closely with trustees of schemes applying to the FCF to make sure the work they undertake is at reasonable cost and safeguards scheme assets”, with a view to “limit the burden on FCF levy payers”, the plan read.
The lifeboat “will also ensure all alternative avenues of redress and recovery are fully explored prior to the settlement of any claim”, it added.
As reported by Pensions Expert, the government will press ahead with an increase to the FCF levy to £1.80 from the current charge of 75p a member for pension schemes, and to 65p from 30p for master trusts.
According to the Department for Work and Pensions’ cost impact analysis, the increase in the FCF levy will cost pension schemes £260mn over the next nine years. Of this total, £130mn will be paid exclusively by master trusts, due to the number of members and different pots they manage.
The FCF, set up in 2004, was designed to compensate pension schemes that suffered losses as a result of dishonesty. However, since its inception, doubts about the eligibility of claimants have caused significant delays to its operations with regards to pension scams.
That issue was settled in November 2020 after the PPF and Dalriada sought clarity from the High Court, which ruled that any occupational scheme liable to pay the FCF levy could qualify for compensation in the event of fraud.
Following the court ruling, nine claims totalling £40mn were received, with more expected following confirmation of eligibility criteria. The PPF is “aware of” an additional 117 possible claims with a potential value in excess of £358mn, but the FCF itself only has assets totalling £33.9mn.
In April 2021, the FCF levy was raised to the maximum allowed by law at 75p a member and 30p for master trust members.
Considering the levy alone would not be sufficient to cover all claims, the PPF secured a loan from the DWP for the FCF, which is expected to cover 122 schemes and amounts to approximately £250mn over the period 2021-25.
As the loan needs to be repaid by 2030-31, the DWP launched a consultation on an uprate to the fraud compensation levy, which will now go ahead, with the new rules having been laid in parliament.
According to its strategic plan, the pensions lifeboat expects to have processed the majority of known claims on the FCF over the course of the three-year period.
“We’ll continue to embed and, where necessary, refine the processes we’ve implemented as a result of the complex forms of scam schemes now eligible for FCF, and share our learnings with relevant parties,” it stated.
New strategic priorities for the PPF
For the next three years, the pensions lifeboat has established four new strategic priorities: “Meeting new challenges with brilliant service, excellence in asset and liability management, making a difference and transforming their ways of working using enhanced technology.”
Included in these objectives is the implementation of the PPF’s amended compensation regime following the recent Hampshire and Hughes court rulings, and to publish an holistic sustainability strategy, among other goals.
Industry anger as new FCF levy goes ahead costing MTs £130mn
The government is to press ahead with an increase to the Fraud Compensation Fund levy, which will see master trusts brunt the majority of the costs, paying an extra £130mn over the next nine years, despite their members being the least likely to benefit from it, experts have warned.
Oliver Morley, the PPF’s chief executive, said: “Our strong performance against our 2019-22 strategic priorities, despite the challenges of the pandemic, has established a strong foundation for us to now build on.
“Our unique position allows us to continually look for new ways to innovate and exemplify best practice in pensions, asset management and customer service.
“Over the course of the next three years, we’ll continue to invest in, and improve, services to our members and levy payers so we can sustainably deliver high levels of satisfaction and remain as efficient as possible.”
