The Pension Protection Fund (PPF) has announced its final levy rules for 2024/25 and confirmed a 50 per cent reduction in its target levy collection to £100m next year, down from £200m in 2023/24.
Next year’s levy of £100m is the lowest ever level the PPF has charged since it came into operation in 2005. As a result, almost all PPF-eligible defined benefit schemes in the UK are expected to see a further reduction in their levy next year. As supported by respondents to the consultation, and set out in the Policy Statement, the PPF will proceed with minimal changes to its levy methodology for next year.
The PPF’s ability to reduce the levy further is, in effect, constrained by current legislation. When the PPF was set up nearly 20 years ago, legislation sought to protect levy payers from sharp rises in the levy by imposing a limit of 25 per cent on year-on-year increases to the levy target. However, this now effectively constrains how low the levy can fall without damaging the PPF’s ability to respond to a funding challenge should one arise in future.
The majority of respondents to the consultation understood and supported the PPF’s approach, in light of legislative constraints, to maintaining a levy at this level in future years. However, almost all felt strongly that legislation should be changed as soon as possible to allow the PPF to move to a much lower or even a zero levy. The PPF has shared these responses with DWP who will consider the points raised and expect to legislate as soon as parliamentary time allows.
David Taylor, 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 DWP are considering this.”
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