PPF levy should be cut to reflect defined benefit sector health

The PPF has sought industry feedback on its plans to maintain the levy at the current level of £100m.

In its response to the consultation, the PLSA argues this level is difficult to justify given that improvements in funding levels and interest rates now mean 80% of DB schemes are in surplus and the level of aggregate surplus is high. Meanwhile the funding position of the PPF itself is very strong, with reserves of over £12bn as at 31 March 2023. Claims on the PPF have also been low in recent years, totalling just £25.5m in 2021/22 and 2022/23. Given this overall position, PPF funding is robust enough to safely secure member benefits even if it faced significant unexpected claims.

Under the current legislative framework, annual increases to the levy are capped at 25%. Consequently, the PPF has been reluctant to lower the levy below £100m in case scheme funding strength deteriorates or future insolvencies necessitate higher claims.

However, as has been previously argued by the PLSA, pension funds believe strongly that the legislation should be reformed, possibly as part of the Pension Schemes Bill, to raise the year-on-year levy increase cap (to say 50%) or remove it altogether.

Primary legislation would be required to implement such a change and therefore any reforms are a matter for Government. The PPF is aware of the industry’s concern over this and sought to provide some reassurances in last year’s levy response that DWP has “agreed to revisit the legislation as soon as parliamentary time allows”.

However, even in the absence of (or perhaps as a precursor to) legislative change, it is entirely appropriate for the total levy for 2025/26 to reduce below £100 million to reflect the reduced risk to the PPF.

Joe Dabrowski, Deputy Director of Policy at the PLSA, said: “It is unhelpful that thousands of pension schemes and/or their employers are directing a hundred million pounds towards unnecessary additional funding of the PPF.

“Given the overall improvement in pension scheme funding, declining numbers of claims and the healthy financial situation of the PPF, a reduction in the levy is entirely justified.”

Click here to read the consultation response in full.

Mark Smith, Head of Media Relations
020 7601 1726 | [email protected]

Cali Sullivan, PR Manager
020 7601 1761 | [email protected]