The UK’s Pension Protection Fund (PPF) said there is a possibility to further reduce the levy it charges as the Department for Work and Pensions (DWP) is considering changes to the legislation governing the lifeboat.

The PPF is governed by legislation that was set up nearly 20 years ago to protect levy payers from sharp rises in the levy by imposing a limit of 25% on year-on-year increases to the levy target.

This means that the PPF could not reduce levies to zero without losing the power to charge a levy in future.

Yesterday, the PPF confirmed it will halve the current £200m levy to £100m for the next year, following a consultation that ran from 11 September until 30 October.

This is the lowest levy the PPF has ever charged. However, almost all consultation respondents felt strongly that legislation should be changed “as soon as possible” to allow the lifeboat to move to a much lower or even a zero levy, the fund said.

The PPF said it shared these responses with the DWP to consider the points raised, and expects the DWP to legislate changes “as soon as parliamentary time allows”.

David Taylor, PPF’s executive director and general counsel, said: “Next year’s target collection of £100m will be the lowest levy we’ve ever charged. As a result, almost all schemes will see a fall in their levy.

“The possibility of zero levy in future has come closer into sight. To further reduce the levy in future, we need legislative change; I’m grateful that the DWP is considering this.”

‘War chest’

The PPF protects about 5,200 schemes with nearly 10 million members. In 2019 it reported reserves of £6.1bn, compared with £12.1bn in March this year.

It paid £1.2bn in compensation payments to some 193,218 retired members in 2022/23, with another 102,310 not yet eligible, typically due to age.

With such a strong financial position, many in the pensions industry believe they should not be made to pay the levy.

Joanne Shepard, head of PPF consulting at WTW, said: “The PPF is requiring employers – who typically pick up the cost of levies – to hand over £100m that it very much expects not to need, without a mechanism for paying the money back.”

She added that If levy payers’ contribution to the PPF’s “war chest” is money they are unlikely to see again, it adds “insult to injury” to continue charging “meaningful” amounts.

David Everett, head of pensions research at LCP, said that it seems unlikely that the parliamentary time will be found before the general election, and as such there is a “clear risk” that £100m will have to be charged in 2025/26 even if, like now, the PPF “doesn’t need the money.”

Read the digital edition of IPE’s latest magazine