Pension Protection Fund: Levy for 2021/22

Shortly before the Christmas break, the Pension Protection Fund (“PPF”) published confirmation of certain key points, in advance of its full response to consultation on its levy for the year 2021/22.  The full levy conclusions and final rules are due in January 2021.

Background

The Pension Protection Fund replaces most of the benefits due to those whose defined benefit occupational pension schemes have been left underfunded when the sponsoring employer becomes insolvent.  Its operation, and the benefits it provides, is funded from the assets of those occupational pension schemes, together with the proceeds of levies upon other occupational pension schemes.

Each year the PPF consults on a proposed approach to setting its total levies, together with specific rules, which may impact upon the levy bill for individual schemes too.  The PPF says it expects to collect £520m from schemes in the 2021/22 levy billing process, which it estimates as a reduction of £100m from the equivalent figure in 2020/21.  Invoices for 2021/22 will be issued to schemes in Autumn 2021.

Key confirmations for this year’s levy

Key points of the PPF’s statement for levy year 2021/22 include:

• Confirmation that it will be using the insolvency risk measures in accordance with the models used since April 2020 (D & B).
• A levy adjustment will be applied for smaller schemes, to better reflect their actual risks to the PPF.   The levy for schemes with liabilities below £20 million will halve (from their uncapped calculation).  A taper will apply, up to a full levy amount for schemes with liabilities of £50 million or more.  The PPF is not proposing to re-apportion the costs of this reduction by raising the levies on larger schemes.
• There will be a reduction to the cap on an individual scheme’s levy.  This is estimated to affect only around 150 of the largest schemes.  The maximum amount of annual levy will be 0.25% of scheme liabilities (down from a limit of 0.5%).

It is worth noting that the adjustments set out above may not be permanent features of the levy, and may change in future years.