The Pension Protection Fund (PPF) has launched a consultation on levy rules for 2022/23, with a strong funding position and stable levy rules resulting in a £105m fall in the levy estimate to £415m.

The consultation, which is open until 9 November, revealed that 82 per cent of schemes that pay a risk-based levy are expected to see a reduction, as the PPF's funding position will allow the levy rules to remain stable and the levy methodology to remain unchanged.

The consultation also confirmed that measures introduced in 2021/22 to support schemes amid the pandemic are to remain in place, including the small scheme adjustment, lower cap on the risk-based levy and Covid-19 easement.

The reduction in the levy was attributed to improvements in scheme funding, as well as an update in the way scheme underfunding will be calculated, and employers’ financial resilience in the face of recent economic volatility.

The lifeboat also highlighted its strong financial position throughout the pandemic and defensive investment strategy as being “instrumental” in its decision to allow the levy estimate to fall.

It emphasised that it "bounced back" from the reduced funding level at 31 March 2020, explaining that whilst there are still "significant risks" facing the industry, its strong funding position means it is able to wait to see the level of claims received, rather than increasing levy collection pre-emptively.

PPF general counsel and executive director, David Taylor, commented: “Despite the ongoing risk of employer insolvency, our levy payers’ improved funding positions, together with our financial strength, mean we can avoid raising our levy pre-emptively and maintain stability in our proposed levy rules.

“While we’re pleased to see an overall improvement in scheme funding, we’re mindful of uncertainties around future insolvency rates and the ongoing risk of claims, some of which could individually have a material impact on our reserves.

“It’s therefore vital we continue to collect sufficient levy so we can ensure we can continue to pay our current and future members the compensation they’re entitled to.”

A small number of changes are being made to the levy rules, however, including the bringing together of several levy rules that deal with how schemes without a
conventional covenant are charged and a revision to its approach to overriding scores for companies that have had a restructuring plan or other insolvency-related event.

The PPF confirmed plans for the levy consultation earlier this month at the Pensions Age Autumn Conference, also confirming that the lifeboat is currently in the process of agreeing a loan with the Treasury in order to pay claims on the Fraud Compensation Fund (FCF).

The PPF also previously increased the 2021/22 fraud compensation levy on pension schemes to 75 pence per member, the maximum level allowed under regulations, after a court ruling clarified that occupational pension schemes set up as part of a scam were eligible to claim on the FCF.

Commenting on the consultation, LCP principal, Chris Bunford, said: "There’s been little change to the levy calculation with the PPF expecting to collect £415m for 2022/23, £105m lower than the previous year’s estimate.

"The reduced levy estimate is mainly due to an improvement in individual schemes’ underfunding risk on updated PPF assumptions.

"The PPF’s latest analysis shows the pandemic has had a smaller impact on company accounts to date than was expected, and its strong funding position is allowing it to resist increasing levies whilst it sees whether a longer-term impact will emerge. Some companies with credit ratings will also welcome a more favourable insolvency score treatment."

Share Story: