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The Pension Protection Fund is proposing a zero PPF levy for conventional schemes, under changes in the pension schemes bill that, if passed, will allow it to do so, with a fallback in case the measures do not pass in time. The consultation also sets out changes to the Alternative Covenant Schemes levy and invites views on a future methodological review. It runs until 5pm on 5 January 2026.
The PPF has now launched its consultation on next year’s PPF levy, proposing to keep a zero PPF levy for the roughly 5,000 conventional defined benefit schemes it protects and to adopt a flexible approach given it does not yet have a firm legal basis for doing so.
Chief actuary Shalin Bhagwan said: “Our intent for next year is to not charge a PPF levy to conventional schemes. Provided the legislative changes we need continue to make good progress and we have high confidence they will become law, we’ll then confirm a zero levy for next year. To align our decision making with the remaining passage of the bill we intend to take a flexible approach and have prudently set out a fallback option if required.”
He added: “In the expectation that we’ll ultimately only be charging an ACS levy next year, we’d especially welcome views on our proposed rule changes and intend to conduct a wider review of the ACS levy methodology.”
The PPF recently recalculated the 2025-26 levy to zero based on upcoming changes via the pension schemes bill. Under the Pensions Act 2004, the lifeboat fund cannot increase the levy by more than 25%, meaning it could not be increased from zero.
The PPF said its current reserves and improvements in scheme funding mean there is no need to charge a “material” PPF levy and that it will continue to build financial security mainly through its investment returns.
It stresses that its £14bn reserves, which are at the heart of a debate about discretionary pre-1997 increases, “are essential to protect against future risks” and should not be seen as surplus. The reserve underwrites £1tn of liabilities in the funded DB universe.
The zero levy will depend on the passage of the levy measures through the next stages of the pension schemes bill.
“Recognising that the bill timings at this stage are unclear and could extend beyond when the determination needs to be published, the PPF has set out a flexible approach to align its decision making with progress on the bill,” the fund said, allowing as much time as possible for the bill to progress before the PPF confirms its approach for 2026-27.
“If there is sufficient certainty before the end of the financial year that the bill’s levy measures will become law, the PPF plans to confirm a zero conventional levy for next year. If sufficient certainty hasn’t yet been achieved within this timeframe, the PPF has set out a fallback option for the conventional levy,” the fund said.
The fallback option would mean using last year’s levy estimate and rules.
“Importantly, this would include the same provision, as was recently used for the 2025-26 levy, enabling the PPF to recalculate the levy back to zero for 2026-27 provided the levy measures remain appropriate and progress sufficiently through the remaining stages,” the fund noted.
ACS levy review planned
Elsewhere, the consultation confirms the PPF’s plan to continue to charge an Alternative Covenant Schemes levy, saying that these schemes pose different risks to conventional schemes. The PPF plans to review the ACS levy methodology “in the medium term” to inform how it might need to adapt its approach to reflect market developments.
