The U.K.’s Pension Protection Fund, London is looking to maintain its annual levy at £100 million ($131 million) for the 2025/26 financial year, holding steady at its lowest amount.
Paid by all eligible defined benefit pension plans in the U.K., the PPF levy is collected to ensure the so-called lifeboat can protect participants if the sponsoring employer becomes insolvent.
The PPF's levy proposals, published on Sept. 12, also look to update the PPF methodology, which looks to ensure that the levy continues to be paid across a broad range of plans, and that the levy continues to be distributed in the most “risk-reflective way.”
“Stakeholder feedback last year underscored the importance of, firstly, ensuring the risk-based levy continues to be paid by a broad range of levy payers, rather than allowing the levy to become concentrated on a smaller group," said David Taylor, executive director and general counsel at the PPF, in a news release.
The PPF expects plans will pay broadly the same pension fund-based levy as in 2024/25 and, of the 37% of plans that pay the risk-based levy, most (63%) would see a decrease while only 5% would see an increase.
Pension fund advisory body the Society of Pension Professionals, however, has urged for the levy amount to be reduced to as low as zero. Even though the levy has been reduced to its current rate, down from £200 million in 2023/24, there is a “strong argument” to reduce the levy to as low as zero due to the PPF currently having a “multibillion” surplus, it said in a statement.
Current existing legislation prevents any annual increase in the PPF levy beyond 25%, which means the current surplus may be used as an emergency fund if the PPF’s finances were to deteriorate.
Chris Ramsey, chair of the SPP’s DB committee, said: “Given the U.K. government has already confirmed its intention to pass a Pension Bill next spring, it would make sense for this restriction on the levy to be lifted in that legislation. This would enable a more sensible levy policy going forward, that doesn’t result in such an unnecessary collection of pension plan money.”
Taylor also said he would be willing to engaged with regulators on changing conditions for the levy, which could mean reducing it to as low as zero in future financial years.
The PPF has open a consultation over the proposed levy, with industry feedback due by Oct. 23.
The fund currently has approximately £32.5 billion in assets. It was founded by the U.K. government in 2005, following the passing of the Pensions Act 2004.
