PPF levies for 2024-25 and beyond

The Pension Protection Fund (PPF) has today confirmed its final levy rules for the 2024-25 levy (to be invoiced in autumn 2024) in its Levy policy statement. These are unchanged from those proposed in September and set out below.

In particular, the PPF expects to collect £100 million, half of that estimated for 2023-24, with almost all (99%) levy payers expected to see a levy reduction. This is despite many respondents to the consultation questioning whether the levy needed be so large in light of the continuing and increasing PPF surplus.

The policy statement sets out the PPF’s views as to why it remains wedded to collecting £100 million, including shortcomings with their modelling – such as funding data being, usually, updated by schemes only once every three years. In light of this, the PPF concludes that it is “not prepared to take a potentially irreversible decision now that severely inhibits or entirely removes [its] ability to respond to risks that may develop in future”.

The PPF states that it is working with the Department for Work and Pensions to amend legislation that currently limits the amount by which the PPF can increase the levy from one year to the next (to 25%). Although it accepts that the Secretary of State has the power to increase the 25% restriction, it “believe[s] that this power does not offer [it] the flexibility [it] need[s] if a funding issue develops in future – and [it] need[s] to ensure [it has] the ability to operate independently and to respond promptly to any such funding risks”.

If the primary legislation is amended, it could enable the PPF to set a much lower or even zero levy. Before schemes and sponsors get too excited, this will be “as soon as Parliamentary time allows” – so we wouldn’t suggest you hold your breath.

Main features for 2024-25

• Collect £100 million total levy (as proposed).
• Increase the Levy Scaling Factor (LSF) to 0.40 from 0.37 (as proposed) – in order to ensure that the £100 million is raised.
• Reduce the scheme-based levy (SBL) multiplier to 0.0015% from 0.0019% (as proposed), reducing SBLs by over 20% compared with 2023-24, in order to ensure the SBL is no more than 20% of the total levy – as required by (current) legislation.
• Continue to use A10 s179 assumptions (as proposed) rather than moving to A11; which would otherwise reduce the levy by around £20 million and reduce the pool of levy payers by around 20% absent any other changes.
• The risk-based levy cap will remain at 0.25% of protected liabilities (as proposed). Due to the overall reduction in RBLs, the PPF expects that no schemes will need to have this cap applied in 2024-25.
• No changes to asset stresses (following some significant changes last year), but the PPF will continue to monitor volatility. However, the PPF has worked with The Pensions Regulator to improve Exchange help files to clarify how assets should be reported and expects these to be published in January 2024.
• Reduce the three credit rating agencies (S&P, Fitch and Moody’s) to two, retaining S&P and Fitch. The PPF will write to all schemes that have a Moody’s rated entity, but expects most entities to remain in the same levy band.
• A simplification in the processes required for Special Category employers (those who are part of government, the Crown or established by legislation, and present a low risk to the PPF).
• A clarification of the treatment of Asset Backed Contributions on termination/surrender.

The policy statement sets out the changes to the Determination and relevant parts of the PPF’s additional guidance. It also notes that updated guidance for s179 (PPF) valuations, G10, will be published shortly.

Future years

Largely as a consequence of the expectation of continued funding improvements and a declining population of RBL payers, the PPF expects to make more significant changes for 2025-26 and subsequent years and consulted in September on some possible measures.

The PPF will “take the feedback received into account as we further develop the proposals for next year”.