The government and the Pension Protection Fund are in early discussions around "greater legislative flexibility” for the PPF levy, according to the lifeboat fund. It is unclear how recently reported proposals to make the lifeboat fund take on schemes of stressed employers would impact the levy. 

 

David Taylor, executive director and general counsel at the PPF, said last year’s funding strategy review concluded the lifeboat could reduce its levy collection without risking the security of members’ benefits, with the PPF’s target levy collection this year being around half that of last year. 

 

“As we reduce the amount we collect in levy, we have identified areas where greater legislative flexibility could support our plans to move to a lower, simpler levy. We are working with [the Department for Work and Pensions] to explore legislative change so that we have the ability, in the unlikely event it is needed, to raise the levy again more freely, and to rebalance how much we can collect from schemes according to their risk and size,” he explained. 

 

His confirmation comes after Lord James Younger of Leckie, the minister for Lords, said in Grand Committee that “early discussions between the two organisations have focussed on the potential rebalancing of the levy, so that it is more aligned with the evolving universe of defined benefit schemes that the PPF is there to protect.” 

 

Ministers are also exploring if the PPF could take on pension schemes whose employer is stressed, rather than insolvent, the Financial Times reported on Thursday. It is unclear how this would affect the PPF levy. 

 

A PPF spokesperson said: “The PPF’s future role is a matter for policymakers, but we recognise there are opportunities which could deliver better outcomes for defined benefit scheme members and support the wider economy.  Given our proven skills and capabilities, including our investment expertise, we stand ready to support government and industry where PPF could form part of the solution.” 

 

In Grand Committee, Baroness Ros Altmann, a former Conservative pensions minister, said it would make sense to look at the structure of the levy, and Labour’s Baroness Maeve Sherlock asked if there was a need for more flexibility in the way that the levy is set. 

  

“The challenge for the PPF is that it has to tack a course between levying enough for its likely needs in the year ahead while ensuring that it is still able to bring in enough additional revenue if it suddenly faces large claims or a significantly riskier environment. Since it can increase the levy by only 25% a year, the decision on the levy can never just be a short-term consideration with a 12-month horizon,” she said. 

 

For 2023-24, the PPF estimated that more than 98% of schemes in its universe would see their levy fall in light of significantly improved funding levels. The PPF’s levy estimate is £200m for 2023-24, down from £390m a year earlier, which had already been a reduction of £130m from the 2021-22 levy year.   

 

The Lords made a number of other points about the PPF, including whether indexation should increase beyond 2.5%, and if indexation can be applied to pre-1997 benefits, which currently do not get any increases. Baroness Sherlock asked if any modelling has been done on the cost of removing or raising the 2.5% cap and if so, what it showed. 

 

Lord Younger did not reveal if any modelling had been carried out and poured cold water on Labour’s ambitions to increase PPF benefits, saying that “changes in the indexation rules would significantly impact the PPF’s funding strategy and the wider pensions system. Increasing the indexation provided on compensation would incur significant direct costs for the PPF”. 

 

He said: “The deficits of eligible schemes that use the PPF levels as a way of measuring funding would increase, and therefore the size and likelihood of future claims would grow." 

 

The DWP did not comment, saying the levy was a matter for the PPF board. 

  

What should happen with the PPF levy?