The U.K. government is considering proposals to allow the £32.5 billion ($39.7 billion) Pension Protection Fund, London, greater flexibility to reduce the levy it collects from pension plans, according to an announcement by the Department for Work and Pensions.
Paid by all eligible defined benefit plans in the U.K., the PPF levy is collected to ensure the so-called lifeboat fund can protect participants if the sponsoring employer becomes insolvent.
Under current rules, the PPF has limitations on changing the levy it collects from pension plans despite the PPF being in a strong financial position, following years of a high level of levies collected while the majority of pension plans remain in surplus.
In September, the PPF announced that it is looking to maintain its annual levy at £100 million for the 2025-2026 financial year, holding steady at its lowest amount.
Following the proposed rule change, the PPF has already confirmed it will look to reduce the levy for 2025-26 to £45 million.
"The Pension Protection Fund is an important safety net for many pension savers," said Pensions Minister Torsten Bell in a statement published online by the DWP. "It is also one in a strong financial position, so it is time to change outdated rules that would force the PPF to levy pension schemes unnecessarily. This will free up funds that allow pension plans or employers to invest, supporting savers and growth."
Under current rules there is a cap on the annual increase in the PPF levy of 25%, yet with rule changes this could be scrapped, meaning immediate lower fees but the chance for higher rises in the future if circumstances changed.
"The Pension Protection Fund provides a valuable safety net to defined benefit pension plan members," a spokesperson for the £78 billion Universities Superannuation Scheme, London, said in a news release. "While we would not expect USS to ever make a claim, the PPF’s role in underpinning their benefits is welcome reassurance to our members. Given the PPF’s growing surplus, we welcome the recognition by them, and the government, that the time is now right to reduce the money collected from pension plans."
It is expected that the changes to the PPF levy will be incorporated into the forthcoming Pension Schemes Bill, expected to be a wide-ranging piece of legislation by the Labour government in an attempt to overhaul the pension fund sector.
"This is a very welcome announcement which will reduce costs for pension scheme sponsors without undermining the financial position of the PPF," said Steve Webb, a former government pensions minister and now a partner at consultancy firm Lane Clark & Peacock, in a news release. "We had reached an absurd situation where the PPF had to continue with a levy that it did not need, simply to protect its future options. Provided that this change goes through, we can expect to see levy bills fall, which will be a welcome boost to companies who sponsor defined benefit plans."
The Society of Pension Professionals, an industry organization, has previously called for amendments to the PPF legislation along the same lines as that now made in the recent government proposals.
The PPF was founded by the U.K. government in 2005, following passage of the Pensions Act 2004.
In the U.S., there have also been calls to change the funding levels of its lifeboat fund, the Pension Benefit Guaranty Corp., Washington, due to a perceived high surplus level. The fund had $127.9 billion in assets for an overall surplus of $37.6 billion as of 2022.
