The Pension Protection Fund, London, is proposing changes to its levy for the fiscal year 2021 to help support businesses struggling with the impact of the coronavirus.
The £32 billion ($41.3 billion) PPF, the lifeboat fund for the defined benefit funds of insolvent companies in the U.K., collects the levy each year from businesses.
The fund said Tuesday that it has been able to avoid proactively increasing the levy for 2021-'22, due to a strong financial position at the start of the COVID-19 pandemic, in terms of its balance sheet and defensive investment strategy. Its strength is in spite of the risk of increased claims, a news release said. It expects to collect a total £520 million in levy payments for the fiscal year 2021, £100 million lower than the total it expects to collect for the current fiscal year.
The PPF also made two proposals for the next fiscal year to help pension funds and their sponsoring employers with paying the levy.
For pension funds with less than £20 million in liabilities, the levy will be cut in half to better reflect the risk these funds pose to the PPF. The PPF is also proposing to taper away a reduction in the levy "to avoid a cliff edge" effect, meaning that only pension funds with £50 million in liabilities will pay the full amount, a consultation document outlining the proposals said. The move is expected to help about 2,000 pension funds run by small and medium-sized businesses.
The second proposal is to cap the amount of levy paid by any individual pension fund at 0.25% of liabilities, down from 0.5%.
"The current environment makes setting an appropriate level for the levy particularly challenging," David Taylor, executive director and general counsel at the PPF, said in the release. "There is significant uncertainty about how claims and risks will develop so we've moved away from a multiyear approach to setting the rules. This means we can respond dynamically when setting the amount of levy we collect each year."
The consultation is open for comment until Nov. 24.