The government will consider giving the Pension Protection Fund more flexibility to reduce its levy, it has said. In the meantime, the PPF has lowered its 2025-26 levy to £45m, down from an estimated £100m. 

The government is considering proposals to allow the PPF greater flexibility to reduce the levy it collects from pension schemes by relaxing restrictions, it has said, claiming this will “unlock millions of pounds for schemes, enabling employers to invest in their businesses and grow the economy”. 

 

“The Pension Protection Fund is an important safety net for many pension savers. It is also one in a strong financial position, so it is time to change outdated rules that would force the PPF to levy pension schemes unnecessarily," said Torsten Bell, the new pensions minister. 

The PPF has welcomed the Department for Work and Pensions’ announcement. Under existing law, the PPF cannot change the levy by more than 25% from one year to the next, preventing it from ever setting the levy at zero, even with reserves of about £13.2bn.

PPF chair Kate Jones said: “Levy payers have long made a vital contribution to the PPF’s funding. We ultimately don’t want to charge levy payers any more than we need. This positive announcement is an important step towards that end goal.” 

The PPF has now included a provision in its levy rules to enable the board to calculate a zero levy if it is given greater flexibility in setting the levy and this is sufficiently progressed in 2025-26. 

For now, the £32bn fund has finalised plans for the 2025-26 levy at £45m, down from a £100m estimate and the lowest ever. Almost all (99.7%) schemes in the PPF universe are expected to see a reduction in their levy payment, according to the lifeboat fund. 

Jones also highlighted another area the PPF has seen engagement on, inflation increases. She said the PPF would “welcome further government consideration” of PPF and Financial Assistance Scheme indexation rules. PPF members with benefits accrued before 1997 currently do not get inflation adjustments.

The pensions industry, which has been lobbying for a reduction in the levy, has welcomed the proposals. 

“If a legislative change can be secured in the 2025 pensions [schemes] bill, this would mean pension schemes would no longer have to bear an unnecessary multi-million pound annual cost, and this money could instead be used to help members, employers and the wider economy,” said Chris Ramsey, who chairs the Society of Pension Professionals’ defined benefit committee.

“We are not quite there yet, but today’s announcements from the PPF and DWP represent great strides in the right direction and are very much welcomed by the SPP,” he added.

Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Savings Association, said the PPF’s decision to cut the levy to £45m, and potentially to zero, was good news for DB schemes and their sponsors. 

“The strong signal of intent from the government to change the rules to allow the PPF more flexibility to reduce the levy further suggests a solution could be included in the upcoming pension schemes bill,” she speculated.