The Pension Protection Fund is looking to reduce the industry levy in the next few years as its funding levels improve — and may seek legislative changes to give it more flexibility about how it imposes these charges.
These proposals were contained in the PPF’s strategic plan for the next three years. This plan shows the improved funding position around this pensions lifeboat, which is working towards being self-sufficient by 2030 – so removing the need for an industry levy.
Within this document the PPF says: “Assuming our funding position remains robust over the three year period we will: – look to reduce how much levy we collect in keeping with our long stated intention, whilst still charging an appropriate levy that reflects the level of risk.”
It then adds: “As part of this we will identify where legislative change would be helpful to give us more flexibility in charging the levy in the future.”
Under current rules the PPF is not allowed to raise levies by more than 25 per cent in a single year.
Pension experts have said a change to the primary legislation around this could allow the pensions lifeboat to reduce levies more significantly, because it would have the flexibility to increase them by a higher margin, should future problems emerge.
Willis Towers Watson head of PPF consulting Joanne Sheppard says: “ “This sounds as though the PPF is preparing to lobby for a change to the law which prevents it from raising the ‘levy estimate’ – the amount is aims to collect through levies – by more than 25 per cent in a single year.
“This was put in place in 2004, against a background of scepticism about whether levies would be as low as the Government projected and fears that the levy would rise quickly.
“In current conditions, when the PPF is well-funded and thinks it has a 95 per cent chance of hitting its self-sufficiency goal by 2030 but is still worried about what might lie around the corner, the law is more likely to act as a brake on levy cuts. The Government has the power to increase the 25 per cent number but removing the restriction altogether would require primary legislation; that would be necessary if the PPF ever wanted to waive levies altogether for a year (or more) and still be able allowed to charge levies in future.”