PPF levy cut will mean significant savings for DB funds 

The Pension Protection Fund (PPF)’s decision to reduce the amount it will levy on defined benefit pension schemes from £100m to £45m, has been welcomed by the Pensions and Lifetime Savings Association (PLSA). The PLSA has been calling for the levy to be reduced to zero given the health of the PPF and the strong funding position of defined benefit funds. The PLSA said that with more than £13bn in surplus, the PPF’s ability to withstand claims is “unquestionably secure, reflecting the success of its management.” It pointed out that claims remain low – with just 14 claims totalling £13.5m paid in 2022/23 – and DB scheme funding levels are at record highs. The levy is paid by defined benefit schemes to fund the operation of the PPF, which was set up to protect pension members in the result of an employer insolvency. Last week the PPF Board more than halved its levy estimate for 2025/26 to £45m. It said: “This is a significant reduction on the £100m estimate initially proposed and would be its lowest ever levy. Almost all schemes – 99.7 per cent – would be expected to see a reduction in levy next year.” It acted after the government said it will consider giving the PPF more flexibility to reduce its levy, thus supporting DB schemes and their sponsoring employers to drive growth. Kate Jones, PPF chair, said: “We warmly welcome the government’s intent to give us greater flexibility to reduce the levy. Levy payers have long made a vital contribution to the PPF’s funding. We ultimately don’t want to charge levy payers any more than we need.” The PLSA said the announcement provides a significant saving on a currently unnecessary cost for pension schemes and their employers, with the potential for further reduction. Zoe Alexander, director of policy and advocacy at the PLSA, said: “The PPF’s decision to cut the levy from £100m to £45m, and potentially to zero, is really good news for defined benefit pension funds and their sponsors. “The strong signal of intent from the Government to change the rules to allow the PPF more flexibility to reduce the levy further suggests a solution could be included in the upcoming Pension Schemes Bill.” The Pensions Act 2004 places a legal limit of 25% on the extent to which the levy can be increased from year to year. The PPF said legislative constraints mean if it reduced the levy to zero it couldn’t start it again and, the lower the levy falls, the longer it would take to raise it to a material level should a funding crisis arise. Kate Jones said: “We’d welcome further government consideration of PPF and FAS indexation rules.”

PPF levy cut will mean significant savings for DB funds

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