The Pension Protection Fund is expected to halve the levy is collects from to DB schemes as a result of improved funding.
As part of its long-term funding strategy the lifeboat fund has put out a revised funding objective and said its priority is now maintaining financial resilience, rather than building it.
PPF CEO Oliver Morley says: “We’ve made rapid progress on our funding journey in recent years and are further ahead at this point than we expected to be, largely through the excellent performance of our investment approach.
“As outlined in our levy consultation this means we expect to collect £200 million in levy next year (2023/24), a near halving on the amount we’re looking to collect this year. Almost all our levy payers will be paying less levy next year.”
This news comes just days after a number of DB schemes were in danger of financial collapse in the wake of the huge sell off in the gilt markets following the mini-budget. Their position has been rescued after intervention by the Bank of England which announced an emergency £65bn purchase of gilts in order to stabilise the market.
Morley adds: “We’re able to share the positive impact of our strengthened position with the 5,200 schemes, and 10 million members, protected by us. We hope that schemes will use the reduction in their levy payments to further strengthen the position of their own scheme and improve the outlook and security for their members.”
This move has been welcomed by the pensions industry. PLSA deputy director policy, Joe Dabrowski says: “The PLSA has previously called for a lower levy in response to increasingly high levels of PPF surplus. Its decision today to announce a reduction in its levy underlines the PLSA’s assessment that, despite recent market difficulties, pension funds remain well-funded and a secure home for savers’ pensions.”
He adds: “It’s very positive that the PPF is in such a strong place, given its important role in the sector and the wider economic challenges we currently face.”
Barnett Waddingham principal Lewys Curteis adds: “In common with other DB pension arrangements, the PPF has experienced a substantial improvement in its funding position in recent months. This has allowed the PPF to take its first steps along the path to charging a significantly lower (and potentially zero) levy in the future.
“The PPF is expecting almost all schemes to see a levy reduction due to the changes it is making to the calculation, with an average reduction of over 50 per cent. Some schemes will see a much bigger reduction in their levy. This is clearly fantastic news for levy payers, and we would encourage all companies to understand the implications of this change. For some this will free up a large amount of capital that can be put to good use elsewhere.
However he adds: “The PPF has acknowledged a potential problem brewing if the levy reduces significantly over the coming years. Legislation restricts the annual rise in total PPF levy collection to 25 per cent – so if the PPF ever raises zero levy in a future year, they’ll never be able to raise one again. We encourage the DWP to consider this anomaly now before the PPF becomes hamstrung by the rules should its fortunes turn.”
