The Pension Protection Fund (PPF) has today confirmed its final levy rules for the 2025-26 levy in its Levy policy statement. The final rules are different from those proposed in the September consultation which suggested a collection target of £100 million.
The PPF now expects to collect £45 million, with almost all (99.7%) levy payers expected to see a levy reduction. This was a result of stakeholder feedback on the consultation proposals challenging the £100m collection target given the PPF's strong funding position and urging a change in legislation to support a lower collection target (possibly nil).
The PPF has included a provision in the rules to enable the calculation of a zero levy if the required legislative provisions are brought forward and become law over 2025-26 or if the Government makes a clear commitment to make the required changes. The PPF will keep the situation under review but will be able to exercise discretion and calculate a scheme-based and risk-based levy of nil for schemes, except alternative-covenant schemes for which a risk-based levy will continue to be charged.
Main features for 2025-26 if no legislative changes (or commitment to changes)
- Collect £45 million total levy.
- Reduce the scheme-based levy (SBL) multiplier to 0.0009% from 0.0015%, so that the proportion of the levy that is scheme-based is set to the legislative maximum of 20%.
- Maintain the Levy Scaling Factor (LSF) at 0.40.
- Base levies on the latest 'A11' version of the PPF's s179 valuation assumptions, to take account of changes in buy-out pricing in the insurance market.
- Retain a cap on the risk-based levy of 0.25% of protected liabilities.
- Update asset and liability stress factors in the levy calculation but maintain a one standard deviation stress on the levy. (The consultation suggested a move to two standard deviations which is no longer required with the reduction in the target levy to be collected).
- Following the PPF's change to using two rather than three credit rating agencies in insolvency scoring last year, update the mapping of credit ratings to levy bands and rates.
Other changes
- Extend the simplified Option Beta certification option to all schemes and widen the definition of contributions that can be certified as Deficit Reduction Contributions to include, upon actuarial certification, special contributions that sponsors might pay into a scheme without a Recovery Plan.
- Widen the special category employer criteria for employers of very low risk of their scheme entering the PPF, by allowing entities classified by the ONS as public financial and public non-financial corporations to apply.
Invoicing
Given uncertainty in respect of the levy to be collected, which will depend on the timing of legislative changes, there might be a delay in invoicing which usually commences in the autumn. The PPF expects to provide an update on invoicing expectations by the end of September 2025.
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