The Pension Protection Fund (PPF) has issued their annual consultation document for the 2023/24 levy year. The PPF’s levy estimate for 2023/24 is £200m, which is almost a 50% decrease compared to that raised for 2022/23 (£390m).
It was announced that positive fund performance and a reduced risk of claims, has meant that they are in a strong enough funding position to reduce the levy collection so significantly without risking current and future members’ benefits. This is clearly good news as almost all schemes are expected to see their levy fall in 2023/24, with an average reduction of over 50%.
The PPF has outlined their long-term strategy of a simplified levy, which is less sensitive to insolvency risk and which varies more based on the size of a scheme size and placing greater emphasis on the ‘Scheme based’ levy.
Key proposals for 2023/24 levy
- Insolvency band levy rates – the PPF is proposing to halve the incremental increases in levy rates between levy bands 2 to 10 hence reducing the volatility of levies arising from changes in insolvency risk.
- Scaling factor & scheme-based multiplier – The levy scaling factor, which is used in the calculation of the risk-based levy, will be reduced to 0.37 (0.48 in 2022/23) and the scheme-based levy multiplier will reduce by 10% to be 0.0019%.
- Risk-based levy cap – The risk-based levy cap is to remain at 0.25% of Scheme liabilities. In practice, the PPF expects that, as a result of the changes above, no Schemes will be subject to the cap in 2023/24.
- The 25% limit on increases to the risk-based levy from the previous year is discontinued. This was a one-off relief provided for the 2022/23 Levy year. The PPF has noted that a small number of schemes will see risk-based levy increases due to the withdrawal of the 2022/23 Adjustment.
Other proposals for 2023/24 levy
We note that there are limited updates proposed for other areas of calculating the levy and have noted the most substantive proposals below:
- The Pensions Regulator is planning to introduce updated asset categorisation for the 2023 Scheme Return. As a result, the PPF commissioned an independent review to update their asset and liability stress factors. The PPF states they “do not expect the updated stress factors to materially impact the Levy Estimate, albeit individual schemes with a greater allocation to certain types of assets may be more impacted (some positively and some negatively).
- An update has been proposed to the ‘Group Small’ scorecard – in particular the ‘Debtors’ variable’.
- The PPF will continue to offer support with payments for the 2023/24 invoice by giving levy payers longer to pay. This requires the levy payer to submit a form to the PPF within 28 days of receiving the levy invoice.
The consultation closes at 5pm on 10 November 2022 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 levy estimates to assist with budgeting for employers and trustees. Please email us if you would like any assistance.
Quantum Advisory
October 2022