Introduction

The Pension Protection Fund (PPF) published its consultation for the 2025/26 levy estimate on 12 September 2024 and confirmed that it would be proposing to set the levy estimate at £100 million, the same level as the previous year. The consultation is open for six weeks and seeks views on the proposed estimate and approach for the levy collection. It closes on 23 October, with the final rules to be published in December 2024.

Proposed levy for 2025/26

The £100 million estimate is the PPF’s joint lowest ever levy, equalling the record set by the 2024/25 levy.

Despite industry calls for the levy to be lowered further (more on that below), the PPF are of the belief that the levy estimate being set at £100 million is the most appropriate course of action. And that maintaining at this level remains consistent with last year’s levy consultation.  

The PPF has, however, proposed several amendments to its methodology. In order to both maintain the £100 million levy and to avoid the number of the schemes paying the risk-based element of the levy declining, the PPF rules would require amendment. That is not possible without primary legislation and therefore the consultation presented technical challenges for 2025/26. As a result, the most significant changes are to the calculation of the risk-based levy and to the rules surrounding deficit reduction contributions.

The PFF has said schemes will pay broadly the same scheme-based levy as they did last year. However the changes are expected to result in schemes that pay the risk-based levy see their payments decrease (with a small percentage (5%) seeing liabilities increase by more than 0.01% of liabilities). Additionally, in comparison to the previous year, the vast majority (95%) of schemes are forecast by the PPF to pay a lower overall levy under the new rules. 

Continued industry debate around the level of the PPF levy 

For some years now industry commentators have been urging the PPF to consider lowering the levy or indeed reducing it to zero (see our blog last year which captured similar calls to lower the PPF levy). Reasons being given this time round as evidence for reducing the levy are: having an improved financial resilience and greater reserves, the PPF finds itself in a particularly healthy funding position; and secondly, the level of funding risk associated with defined benefit (DB) schemes has significantly reduced over the last couple of years.

The publication of the consultation was still broadly welcomed, with many in the industry viewing it as a positive step that better reflected the current financial / economic position. 

The lack of movement in the value of the levy is perhaps unsurprising though; when making remarks at the time of the previous year’s levy, the PPF CEO Oliver Morley indicated that, barring significant changes to the risks the PPF faces or to the legal framework it operates within, the PPF “plans to ensure the levy remains at or above £100m” in future years.

Future of the Levy 

The lack of flexibility in the PPF levy legislation appears to be the primary reason that the PPF is unwilling to lower or reduce the levy to zero. 

However, the PFF has expressly confirmed its plans to continue working with the Government to secure the legislative change necessary to permit further reductions in the levy and even to reduce it to zero. The PPF has indicated that it is keeping “progress on it under review” and does not wish to “charge for longer than we need”.

Comment

The Government has confirmed its intention to pass a Pensions Bill next Spring which would seem to present the ideal opportunity to amend the PPF rules in the manner required. Whilst of course retaining the ability of the PPF to re-introduce the levy in the future should pension schemes find themselves once more in a deficit position which whilst it seems hard to believe now, was the case across the board not so very long ago. 

Co-authored by Clive Pugh, Lui Henderson and Mairi Carlin