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PPF Levy Consultation 2020/21

On 25 September 2019, the Pension Protection Fund (PPF) issued their annual consultation document for the 2020/21 levy year, the third year of the current triennium.  The PPF aims, as far as possible, to keep the levy stable over each three-year period and, as such, the proposal is to maintain the same approach to calculating the levy with all of the key parameters remaining unchanged.

The total PPF levy estimate for 2020/21 is £620m, which compares to the estimate of £575m for 2019/20 – an increase of around 8%.

This increase is driven by the expectation that overall scheme funding will have weakened over the year due to the fall in gilt yields.  Although the methodology allows for an element of smoothing and this will mitigate some of the impact of weaker funding positions, the expectation is that increased deficits will lead to an increase in the levy.

It is important to note that, as the calculation is unchanged, individual schemes will only see an increase in their levy if their funding has deteriorated, the insolvency risk has increased or they have moved to an investment strategy which is assessed as being higher-risk.  Therefore, schemes that hedge a significant proportion of their liabilities should not see a material rise in their levy (assuming their insolvency risk is unchanged).

The consultation does comment on a couple of other areas:

  • Guarantor Strength Reports were introduced in 2018/19 as a requirement for schemes with contingent assets where the anticipated levy saving exceeded £100,000. The PPF have slightly revised their guidance in this area with the aim of future reports providing a holistic assessment and avoiding a tick-box approach.
  • Section 179 valuations with an effective date of December 2018 or later should be submitted including a best estimate allowance for GMP equalisation. Where the levy is based on earlier section 179 valuations, no adjustment will be applied to build-in an allowance.

While there are very few changes for the 2020/21 levy year, significant changes are expected for 2021/22 including the previously announced switch from Experian to Dun & Bradstreet as the provider of the insolvency risk information.

The consultation closes at 5pm on 5 November 2019 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.

Please get in touch with your usual Quantum Advisory contact if you wish to discuss the contents of this document in further detail.