Calls to cut the Pension Protection Fund's (PPF) levy to zero have continued to grow, with industry organisations arguing that the PPF should reduce its levy even in the absence of legislative changes.

The PPF recently proposed a £100m levy estimate for 2025/26, equalling its lowest ever levy.

However, the Pensions and Lifetime Savings Association (PLSA) argued that the PPF levy, paid by defined benefit (DB) funds to support the pension lifeboat, should be cut to zero to reflect the strong funding position of the sector and health of the PPF.

In its response to the consultation, the PLSA argued that the proposed £100m level is difficult to justify given that improvements in funding levels and interest rates now mean 80 per cent of DB schemes are in surplus and the level of aggregate surplus is high.

The PLSA also pointed out that the funding position of the PPF itself is very strong, with reserves of over £12bn as at 31 March 2023, and claims on the PPF have also been low in recent years, totalling just £25.5m in 2021/22 and 2022/23.

The Society of Pension Professionals (SPP) made a similar call to cut the levy, arguing that the £100m annual levy could be more usefully employed elsewhere, such as schemes investing in productive assets or UK companies investing in their own business.

"There is also no clarity on what any potential PPF surplus might eventually be used for or when it may be used," the SPP also pointed out.

Under the current approach, however, annual increases to the levy are capped at 25 per cent, with the PPF therefore reluctant to lower the levy below £100m in case scheme funding strength deteriorates or future insolvencies necessitate higher claims.

Given this, the PLSA argued that this legislation should be reformed, possibly as part of the Pension Schemes Bill, to raise the year-on-year levy increase cap (to say 50 per cent) or remove it altogether.

And work on this is seemingly already underway, as the PPF previously confirmed that the Department for Work and Pensions (DWP ) had “agreed to revisit the legislation as soon as parliamentary time allows”.

When sharing its levy estimate, the pensions lifeboat also reassured the industry that it was engaging with the government on legislative change that would allow the levy to be reduced further, possibly to zero.

However, the PLSA argued that, even in the absence of, or perhaps as a precursor to, legislative change, it is "entirely appropriate" for the total levy for 2025/26 to reduce below £100m to reflect the reduced risk to the PPF.

PLSA deputy director of policy, Joe Dabrowski, said: “It is unhelpful that thousands of pension schemes and/or their employers are directing a hundred million pounds towards unnecessary additional funding of the PPF.

“Given the overall improvement in pension scheme funding, declining numbers of claims and the healthy financial situation of the PPF, a reduction in the levy is entirely justified.”

In addition to this, the SPP said that there is a "strong argument" that the levy waiver should allow all schemes that have a full scheme buy-in to have a waiver from the scheme based levy.

SPP DB Committee chair, Chris Ramsey, added: “The SPP has repeatedly made clear that we don’t believe the levy needs to be maintained.

"We have again urged the PPF to reduce the levy to zero whilst also seeking the necessary legislative changes to prevent any future problems arising.

"As a minimum we strongly suggest that the PPF reduces the levy from the proposed £100m.”

Commenting in response, a PPF spokesperson said: “We are grateful for the views shared through our Levy Rules consultation.

"The PPF has reduced the levy to its lowest ever level and our consultation explains why further reductions present challenges ahead of legislative change.

"The board will consider the responses and ensure stakeholder views are communicated to government.”

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