Pension Protection Fund levy – lower levies expected in 2022/23

The Pension Protection Fund (PPF) is consulting on its draft levy determination for the 2022/23 levy. The PPF currently has a strong funding position. It therefore intends to set the 2022/23 levy estimate at £415 million, £105 million less than in 2021/22. Around 82% of schemes that pay the risk-based levy will see a levy reduction. The consultation closes on 9 November.

What is the PPF levy?

Unless exempt, all DB occupational pension schemes in the UK must pay an annual levy to the PPF. The levy comprises a scheme-based element and a risk-based element. The scheme-based element reflects the number of scheme members and the level of the scheme’s liabilities. The risk-based element reflects the level of the scheme’s underfunding and the probability that the scheme will enter the PPF in the levy year. The levy is calculated and payable annually. The PPF’s annual levy determination sets out the total levy it expects to require for that levy year, and the rules for calculating individual scheme levies.

What changes is the PPF planning to make?

In developing the draft levy determination, the PPF’s main consideration has been the impact of the Covid-19 pandemic. As in 2021/22 therefore, the PPF is temporarily moving away from setting the levy rules on a multi-year basis so it can remain reactive to economic changes.

The PPF will continue to measure insolvency risk as it has since April 2021, using credit ratings and the PPF-specific model operated by Dun & Bradstreet.

The PPF is proposing very limited changes to other areas of the levy calculation methodology. The key changes include:

• Changes to the basis for PPF valuations following introduction of updated guidance on the valuation assumptions to be used. The PPF expects this to reduce the levy for 99% of schemes.
• Creation of a single appendix combining the previously separate levy rules on commercial consolidators and schemes without a substantive sponsor so that all schemes without a conventional sponsorship structure can be treated consistently.

Is there anything else that levy payers should know?

The PPF will continue to offer the levy payer support measures introduced in 2021/22 for the 2022/23 levy year. These include a facility for levy payers affected by the pandemic to apply for a 90 day extension to the levy payment deadline.

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