Pensions - Articles - XPS and Barnett Waddingham comment on the PPF levy


XPS Pensions Group and Barnett Waddingham comment on the PPF levy announcement. Consistent with the approach adopted last year, the Pension Protection Fund (PPF) has issued another consultation on how it will set levies for the next year only, rather than for the typical longer three-year period. Improvements in market conditions combined with updated assumptions to reflect recent improvements in buyout pricing has resulted in schemes being better funded. The ensuing total levy estimate across all schemes is £415m, a £105m reduction compared to last year, providing welcome relief to levy payers in these difficult times.

 Emily Sturgess, Head of PPF Solutions at XPS Pensions Group said: “Schemes and employers will be relieved to see the PPF continuing to support levy payers by way of a lower total levy. Even with this reduction, however, there will still be winners and losers next year and schemes that see a sharp increase in the insolvency risk of their employer may still see an increase in their levy next year.

 “There are several actions that employers and schemes can take now to ensure that their levy is as low as possible. Acting early can help schemes ensure they pay no more than necessary next year to benefit from the grace period that the PPF is providing and can also help prevent large increases in years to come. Acting now is crucial to manage the uncertainty of the impact that COVID-19 may have on levies in the long term.”

 Pension schemes can take actions to manage PPF levies including:
 - Reviewing the information held by the PPF’s insolvency risk provider Dun & Bradstreet and considering the impact of updating employer accounts.
 - Reviewing the valuation used by the PPF to set levies.
 - Using contingent support, particularly if a funding review is currently underway.
 - Using the full range of measures available to schemes and employers to reduce their PPF levies where possible.

 Lewys Curteis, Associate at Barnett Waddingham, said: “The PPF’s consultation on the 2022/23 levy strikes a positive note for levy payers, with the PPF expecting 8 out of 10 schemes to see a reduction in next year’s levy, and the overall levy collection expected to reduce by around £105m.
 
 “This is a marked change from this time last year, when the PPF was preparing schemes for potentially large levy increases as the pandemic put companies and schemes’ funding levels under significant strain. Fortunately, however, experience to date has been more positive than anticipated, and the impact of the pandemic on company insolvency risk has been relatively limited so far. While the PPF considers its funding position to be secure, it will continue to monitor its risk exposure as the full impact of the pandemic unfolds, and reserves the right to adjust the levy calculation in future years if required.”
  

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