The Pension Protection Fund (PPF) has cut its 2025/26 levy estimate from £100m to £45m as the government moves toward a rule change that could reduce it to zero.
The industry has been critical of the recent PPF proposal to impose a £100m annual levy on pension schemes in 2025/6. However, the current 25 per cent cap on annual levy increases prevents the PPF from reducing the levy to zero.
This forces the PPF to charge a levy even when unnecessary, but the upcoming Pension Schemes Bill will relax these rules. It will allow the levy to be reduced below the £100m planned for 2025/26 while ensuring it can be reinstated if necessary.
PPF chair Kate Jones says: “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. This positive announcement is an important step towards that end goal.”
LCP partner and former pensions minister Steve Webb says: “This is a very welcome announcement which will reduce costs for pension scheme sponsors without undermining the financial position of the PPF. We had reached an absurd situation where PPF had to continue with a levy that it did not need, simply to protect its future options. Provided that this change goes through, we can expect to see levy bills fall, which will be a welcome boost to companies who sponsor DB schemes”.
SPP DB committee chair Chris Ramsey says: “As we have often said, if a legislative change can be secured in the 2025 Pensions Bill, this would mean pension schemes would no longer have to bear an unnecessary multi-million pound annual cost, and this money could instead be used to help members, employers and the wider economy. We are not quite there yet but today’s announcements from the PPF and DWP represent great strides in the right direction and are very much welcomed by the SPP.”
PLSA director of policy and advocacy Zoe Alexander says: “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.”
Broadstone chief actuary David Hamilton says: “It is fantastic news that the PPF and DWP have responded to the industry feedback and are materially reducing their levy for next year.
“It feels counter intuitive to continue to take £100m in levies to further increase surplus assets when the money could be used to directly improve pension scheme funding or allow greater investment by employers. We strongly encourage the DWP to move swiftly to give the PPF flexibility over their levy so that it can be reduced all the way to zero.”
