The government has been urged to update the legislative framework for the Pension Protection Fund (PPF), with the Association of Consulting Actuaries raising concerns that the current framework is "not fit for purpose”.

The PPF launched a consultation on its proposed 2024/25 levy rules earlier this year, revealing plans to cut the 2024/25 levy estimate to £100m, half of the 2023/24 level.

The consultation was also seeking views on the options to maintain a levy of £100m in the longer term, given current legislative constraints on the PPF's ability to cut the levy without damaging its ability to respond to a funding challenge should one arise.

However, the ACA argued that the levy “need not be maintained at the £100m level for artificial reasons”, raising concerns around the need to increase the total levy by no more than 25 per cent year-on-year.

The ACA's consultation response stated: ""Reliance on the PPF is lower in the current environment and, while this may not always be the case, the levy should reflect the risk to the PPF and therefore permit zero levy in years when it is not required.

"If the PPF wants to collect a minimum levy, for example in order to fund in advance for the one on 20 scenario, we believe that the PPF should be able to collect a levy they consider reasonable and reflecting risks, subject to consultation, but without the existing legislative constraints effectively imposing a minimum below which the levy cannot fall.

"The need for stability in levy amount is reasonable when significant levies are required, targeting a long-term funding position; however, based on the current gilt yield environment and general improvement in funding, it is arguable that the PPF is now beyond this stage."

More broadly, the ACA agreed with the PPF's plans to introduce simplifications when the total levy being collected is relatively small.

"However, if the PPF were to collect a more significant levy, for example if significant funding deficits were to emerge again, this would need to be revisited. Removing the legislative constraints would enable lower levies and more simplifications," it continued.

"However, we consider that it is important to avoid situations where schemes in very different situations and representing materially different risks to the PPF are paying similar amounts of levy, where possible; for example, if the levy made no allowance for material differences in the schemes’ funding positions."

It also suggested that, if the levy calculation is to be simplified, this should go ‘hand-in-hand’ with simplification of the data collated as part of the annual scheme return.

The ACA's response also highlighted a number of areas where it felt simplification could be considered more urgently.

In particular, it suggested that, for schemes with insured liabilities, nil risk-based levy should be charged to the insured liabilities, "as they clearly pose no (or negligible) risk to the PPF".

In addition to this, it suggested charging smaller schemes a fixed levy on a sliding scale based on the value of liabilities, arguing that this would bring a level of stability and predictability for these schemes and their levy payments.

It also called for more pragmatic rules and guidance around exempt transfers to enable a wider range of circumstances to be certified.

ACA Pension Schemes Committee chair, Peter Williams, stated: “We agree with introducing simplifications when the total levy being collected is relatively small. Removing the legislative constraints would enable lower levies and more simplifications.

“The PPF should not need to set a minimum levy in order to respond to ‘shocks’ - the levy should reflect the risk to the PPF and therefore permit zero levy in years when it is not required.”

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