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The Pension Protection Fund’s final levy rules and policy for 2021/22

On 29 January 2021, the Pension Protection Fund (“PPF”) confirmed the final rules that will be used to calculate the 2021/22 PPF levies to be issued in Autumn 2021. Importantly there were few changes to note from the consultation document published in September in line with the PPF’s aims to, as far as possible, keep the levy stable over each three-year period.

The PPF is conscious of the impact that the Covid-19 pandemic continues to have and has confirmed 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 full levy rules can be found here and we outline the following key points:

  • Total levy collected – the PPF expects to collect a levy of £520 million (the Levy Scaling Factor (“LSF”) and Scheme-Based Multiplier are confirmed at 0.48 and 0.000021 respectively.)
  • “Go live” date – insolvency risk scores calculated by Dun & Bradstreet (“D&B”) went live from the end of April 2020 and will be used for the 2021/22 levy invoices.
  • The introduction of a small scheme adjustment (“SSA”) – this will be 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. The PPF gave further clarification, which will be welcome news for smaller schemes, by stating it sees “…the small scheme adjustment as a long-term change, rather than a response to the current economic circumstances”.
  • A reduction in the risk-based levy cap from 0.5% to 0.25% of unstressed liabilities – this reduction will apply to all schemes regardless of size and could see a scheme’s levy half if they were already capped. Unlike the SSA above, the PPF has stated that this will be reviewed for future levy years.
  • Whether to continue to offer extended payment terms for the 2021/22 levy invoices – the PPF has not yet confirmed an approach for 2021/2022 levy invoices. They state they will monitor the economic environment and confirm any easements in advance of commencing invoicing in Autumn 2021.
  • Ultimate parent identification for companies with complex structures – D&B’s approach to identifying ultimate parents is more proactive than the more prescribed approach used by Experian previously. More data is used with respect to corporate linkages and overall group structure and therefore there have been more frequent changes than were seen under Experian. The PPF encourages schemes and employers to monitor this aspect of the scoring in order to ensure the correct entities are being identified.

How Quantum Advisory can help…

Similar to Experian, our early experience of the new provider, D&B, is that the data capture and scoring system are not always easy to follow. As with Experian, we have also seen numerous cases where the data or scorecard are incorrect. Therefore, it is crucial that the D&B portal is reviewed, and appropriate advice is sought so that stakeholders do not overpay on their levies.

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

2 February 2021