PPF consults on 2025/26 levy

On September 12, 2024, the Pension Protection Fund published its 2025/26 levy consultation. The consultation runs until October 23, 2024.

The proposal is to maintain the levy estimate at £100 million for 2025/26, in line with that for the previous year. This estimate reflects a significant reduction in DB scheme funding risk over the past two years and the PPF's strong financial position. To maintain the levy at £100 million for 2025/26, the PPF notes that certain adjustments are required to its levy rules. These include:

• Increasing the scheme-based levy multiplier, so that the proportion of the levy that is scheme-based is set to the legislative maximum of 20 per cent (as was the case in 2024/25).
• Altering the asset and liability stresses used in calculating the risk-based levy to ensure fairness between levy-payers.
• Amending rules concerning deficit reduction contributions, including widening the definition of contributions that may be certified, as fewer schemes are likely to require recovery plans in the near future.

As a result of these changes, 63 per cent of schemes paying the risk-based levy will see a decrease in the amount paid. Over 95 per cent of schemes are expected to pay a lower levy overall in 2025/26 compared to 2023/24.

While some schemes that have entered buy-in contracts have called for levy rule changes to reflect the lower risk-matching properties of a buy-in, the PPF says that no rule changes will be made in this area. However, it will support schemes that have a full buy-in insurance contract to make levy waiver applications.

Given the healthy funding position of both the PPF and DB schemes generally, many in the pensions industry feel there is a strong case for the PPF to reduce the levy, potentially to zero. However, the PPF is reluctant to do this as existing legislation prevents any annual increase beyond 25 per cent, which hinders a quick re-introduction in future if the PPF's finances deteriorate. The Government has confirmed its intention to pass a Pension Bill next Spring and the restriction on the levy could be lifted in the new legislation.