The PPF estimates that the result of applying unchanged rules for next year will be that it will collect £620 million in 2020/21 – an increase on the £575 million expected to be collected in the 2019/20 levy year. This rise reflects expected increases in scheme risks. In particular, scheme funding is expected to have deteriorated due to a significant reduction in gilt yields in recent months which will have increased scheme liabilities.
David Taylor, Executive Director and General Counsel at the PPF commented: “I am pleased to confirm that we plan to use the same approach to calculating the levy in 2020/21 that we have been using this year.
“However, the environment in which we are operating has changed. In particular, we have seen significant increases in scheme underfunding driven by declines in the yields on gilts.
“This represents an increase in risk to us and although we smooth scheme funding over five years we do still expect levy collections to increase as a consequence. Using our unchanged rules we estimate we will collect £620 million in 2020/21. This is an increase of 8 percent on average, relative to bills this year.
“As we aren’t changing the rules, and bills are based on the actual risk of individual schemes, the impact on individual schemes will depend very much on their specific circumstances.”
The 2020/21 levy estimate has been published as part of the PPF’s annual levy consultation.
The consultation does not propose significant changes to the levy rules, but invites stakeholders to comment on how levy rules might need to be developed in the future for schemes without a substantive sponsor and commercial consolidators. Stakeholders will also be asked to provide feedback on revised guidance for completing contingent asset guarantor strength reports.
In the past year the PPF has seen the highest level of claims in its history, and the external environment is particularly uncertain. In addition to uncertainties about global and UK markets, there are pension-specific uncertainties including from court cases regarding the UK’s obligation to protect pension incomes in insolvency. These have the potential to affect the risks the PPF faces, the level of compensation it pays, and therefore both the level of the PPF’s funding and of future claims.
David Taylor continued: “While our reserves decreased from £6.7 to £6.1 billion in the last financial year and we continue to face significant risks and uncertainty, our funding position remains strong and we’re on track to achieve our long-term funding objective. We continue to monitor the situation closely and, as we’ve always made clear, will adjust the levy in future years if necessary to respond to circumstances.
“We are grateful to stakeholders for their ongoing support and engagement and look forward to hearing their views on the consultation.”
The levy consultation will be open until 5pm on 5 November 2019.
The consultation document
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