The UK’s Pension Protection Fund (PPF) will not charge a conventional levy in 2025/26, reducing costs for defined benefit (DB) pension funds and their sponsoring employers by a total of £45m (€51.6m).
The move reflects expectations that the government will grant the lifeboat fund greater flexibility over the levy through the Pension Schemes Bill, which is progressing through parliament.
Earlier this year, the PPF set the levy at £45m but included a provision to recalculate it to zero if legislative change advanced sufficiently.
The Bill, introduced in July, contains measures allowing the PPF to move to a zero levy while retaining the ability to reinstate it if needed. It has since cleared the Commons Committee stage.
Recognising that progress, the PPF has acted now to provide clarity for DB schemes and sponsors, giving them time to adjust financial plans. The levy for 2026/27 will depend on the Bill’s remaining passage.
Kate Jones, PPF chair, said: “The legislative changes we’ve needed to reduce the levy further have made good progress, giving us the confidence to act decisively for this year’s levy. As we reach this significant milestone on our journey to financial self-sufficiency, we recognise the invaluable contribution levy payers have made over the past 20 years. We couldn’t have delivered the protection and peace of mind to members without them.”
Pensions minister Torsten Bell welcomed the move, saying it will “support better funded pension schemes and greater investment by firms”.
The decision was also applauded by industry figures, who have long called for the levy’s abolition.
Steve Webb, partner at LCP, said that with the PPF set to get powers to reinstate the levy if necessary, it is a forward-thinking decision by the PPF’s board to set a zero levy at the first available opportunity, especially given the robust funding position of the PPF.
Zoe Alexander, executive director of policy and advocacy at Pensions UK, added: “The reduction of the levy to zero is positive news for defined benefit pension funds, their members and their sponsors, and is the culmination of collaborative working and constructive conversations between Pensions UK, its members and the PPF.
“We acknowledge DWP’s contribution for bringing the necessary legislation forward and welcome the timing of this decision, which will provide much-needed certainty for schemes.”
Jos Vermeulen, head of solution design at Insight Investment, said the announcement was “no huge surprise” given the PPF’s surplus.
However, he argued that having a levy close to zero could “easily allow the government to go half a step further and increase the level of scheme protection to 100%”, which would be a “huge comfort” to trustees weighing surplus release.
He added that this could also support the Gilt market, ease pressure on the UK’s public finances, and channel pension assets into long-term infrastructure and growth initiatives.
“The parlous state of UK finances requires a braver response from our policy makers,” Vermeulen said.
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