2022 was a year fraught with challenges and market turbulence as a result of the Ukraine conflict, energy crisis, the ongoing fallout of Covid-19 and issues caused by the UK government’s ‘mini-budget’. The pensions industry was in need of some good news and indeed it came on 13 December 2022 with the PPF announcing a significant reduction in the levy for the PPF levy year 2023/34.
|Key Point 98% of schemes are expected to pay less levy in 2023/24 than this year.|
The pensions industry will no doubt welcome the PPF’s consultation proposals for changes which will cut the levy to around £200 million for 2023/24, down from £620m in 2020/21 and £390m for this current year.
The PPF confirmed it will reduce the increments between levy bands to significantly reduce volatility in levies and to cut the risk-based levy scaling factor by 23 per cent and the scheme-based levy multiplier by 10 per cent. The consultation also proposes to integrate into the levy the new asset class information being collected by TPR in 2023. All these proposals were strongly supported by respondents during a six-week consultation, which closed on 10 November 2022.
Measures introduced to support schemes during the Covid-19 pandemic with flexibility on payment terms will also stay in place.
The consultation responses raised concerns as to whether the recent market movements would require the PPF to revisit the proposed stress factors for some asset classes. However, the PPF responded that recent market movements will not impact the PPF’s long term funding strategy as this is not guided by short term market volatility.
|Key Point The majority of schemes that pay a risk-based levy can expect it to fall by more than half|
The consultation responses also raised concerns that the PPF’s proposals might mean larger and stronger schemes might have to pay a proportionately greater share of the total levy bill. However, these concerns were met with optimism and reassurance that the PPF sees this as “genuinely unlikely“. The PPF’s expectation is that levies will fall materially over time and the likelihood of the PPF’s funding strategy requiring the PPF to build funds is very low. The PPF remains committed to the principle that those schemes that pose more risk, pay more levy.
It was noted in the PPF’s policy statement that some of the responses that were received raised questions about what would happen to any PPF excess reserves. As legislation is silent on this issue, it will likely be an area which involves legislative intervention.
In light of the good news on the 2023/24 levy, trustees and sponsoring employers should review the impact that this reduction might have on their schemes. For example, at Wedlake Bell we have been involved with some schemes which have reassessed their decision to certify (or re-certify) PPF contingent assets. As schemes with contingent assets will know, these are arrangements which can be put in place to support the level of scheme funding, particularly in the event of an employer insolvency. Certification (or re-certification) of a contingent asset is a process which enables schemes to receive a credit against the PPF levy for their contingent assets. However, with a significant reduction to the overall levy the saving to the PPF levy achieved by certification (or re-certification) is also likely to reduce. Professional advice should be sought as any saving to the PPF levy is affected by several factors including a scheme’s overall funding position.
|Key Point Trustees and sponsoring employers should review the impact that the reduction to the PPF levy might have on their schemes.|
The PPF’s press releases of 13 December 2022 can be read in full here:
If you, as a trustee or sponsoring employer, have any questions or concerns relating to your scheme’s PPF levy or how it can be managed, please do not hesitate to contact a member of our team who would be happy to advise further.