PPF Levies: the calm before the storm?
The Pension Protection Fund’s (PPF’s) triennial review of the levy rules has fallen at a delicate time for the PPF and the defined benefit (DB) pensions that it protects.
As the Government’s support for businesses unwinds, the consequence of the Covid-19 pandemic on UK companies will be laid bare. Unfortunately, there is little doubt that a raft of insolvencies is going to follow, some of which will inevitably involve underfunded DB pension schemes.
With this outlook, the PPF has a difficult balancing act to perform – setting an increased PPF levy now would help bolster the PPF’s funding position. However, an increase in cost would put additional cashflow strain on those companies already in a precarious position. For this year, at least, it would appear that the scales have been tipped in favour of businesses, with the PPF confident that it is resilient enough to weather the oncoming storm without an immediate increase in levy payments.
For the 2021/22 levy year, the PPF is therefore setting an overall levy estimate of £520m, a reduction of £100m compared to the amount expected for this year (2020/21). This reflects an improvement in the PPF’s pricing of pension liabilities (via a change in its s179 valuation basis), as well as specific concessions for smaller schemes and those paying a particularly large levy.
The PPF’s own analysis shows that, as a result of these changes, around 90% of schemes can expect to see a reduction in their levy (which will be invoiced in Autumn 2021) compared to this year. 43% of schemes might expect a reduction of more than half compared with this year’s invoice.
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