Last year, in light of the Covid-19 pandemic, the Pension Protection Fund (PPF) announced that the levy rules for 2021/22 and 2022/23 will be set on an annual basis rather than being fixed for the next three years, as has been the case previously. The PPF have now issued their annual consultation document for the 2022/23 levy year, however, no changes to the levy determination methodology are proposed.
Pandemic reliefs maintained
The PPF is keen to stress that the pandemic and associated challenges that remain have been ‘foremost’ in their minds, and they have proposed that the relief measures set out last year will remain in place. Namely:
- Small scheme adjustment (“SSA”) – this is in the form of a 50% reduction to the (uncapped) risk-based levies of schemes with smoothed PPF liabilities up to £20m. Schemes with PPF liabilities greater than £20m will also have a SSA applied but the adjustment will taper down to zero for schemes with liabilities of £50m and above.
- Risk-based levy cap equal to 0.25% of unstressed liabilities – this reduction will apply to all schemes regardless of size and could see a scheme’s levy halve if they were already capped.
- Extended payment terms for the 2022/23 levy invoices – the PPF’s previously announced support with extended deadlines for paying the levy is proposed to remain in place.
The PPF’s levy estimate for 2022/23 is £415m, which is £105m less than the £520m estimate for 2021/22. The press release also confirms that 82% of schemes that pay a risk based levy are expected to see a reduction. Needless to say, this is welcome news and the PPF is keen to point out that their financial position remains ‘strong’. The levy scaling factor (0.48) and scheme-based levy multiplier (0.0021%) remain unchanged. The same is true for other parameters e.g. the risk-based levy cap, levy rates and bespoke stress test thresholds.
Other proposals
We note that there are limited updates proposed for other areas of calculating the levy and have summarised the most substantive ones below:
- Following the updated s179 assumptions guidance which came into force for valuations carried out on or after 1 May 2021, the PPF is updating its s179 levy valuation basis from version A9 to A10. The updated basis keeps the s179 assumptions in line with the bulk annuity market and is expected in most cases to reduce scheme s179 liability values used to calculate the levy.
- The mapping of credit ratings to levy bands/rates has been updated.
Next steps
The consultation closes at 5pm on 9 November 2021, with conclusions due to be finalised before the end of the year. If you would like to respond to the consultation you can find it here.
Quantum Advisory can provide advice around levy reduction measures, as well as providing levy estimates to assist with budgeting for employers and trustees. Please contact us if you would like any assistance.
Quantum Advisory
October 2021