On 16 December 2021, the Pension Protection Fund (PPF) confirmed its final rules that will be used to calculate the 2022/23 PPF levies to be issued in Autumn 2022.
Pandemic reliefs maintained and extended
The PPF is keen to stress that the pandemic and associated challenges that remain have been ‘foremost’ in its mind, and it has confirmed that the relief measures set out last year will remain in place. In addition, the PPF has introduced a further levy ‘relief’ measure:
- Increases in the 2022/23 risk-based levy (compared to 2021/22) will be capped at 25% – Quoting the PPF:
“We do recognise the exceptional nature of the pandemic and the potential impact of levy increases … in this difficult period.”
The PPF notes the impact the pandemic may have had on the metrics of recently filed accounts for some sponsors. It aims to limit potentially large fluctuations in the PPF levy for a small number of affected schemes by introducing this cap (for the 2022/23 levy year only).
- 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 will see a scheme’s levy halve if it was already capped in levy years prior to 2021/22.
- Extended payment terms for 2022/23 levy invoices – the PPF’s previously announced support with extended deadlines for paying the levy will remain in place.
The PPF’s levy estimate for 2022/23 is £390m (revised downward from its initial estimate of £415m), which reflects the introduction of the new 25% increase cap, as well as market movements and changes in insolvency risk scores. The press release also confirms that over 80% 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 its 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 changes
As set out in September’s consultation, the PPF has confirmed that it will update 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, typically, to reduce scheme s179 liability values used to calculate the levy. Additionally, the mapping of credit ratings to levy bands/rates has been updated in line with the PPF’s policy statement of January 2021.
From 1 December 2021, the general guidance for s179 valuations has also been updated (G8 to G9) to confirm the removal of the cap on PPF compensation.
How Quantum Advisory can help…
In our experience, the data capture and scoring systems are not always easy to follow. We have also seen a number of cases cases where the data and/or scorecard information held are incorrect, and successfully challenged the PPF. Therefore, it is crucial that the D&B portal is reviewed and appropriate advice sought so that stakeholders do not overpay their levies.
Please get in touch with your usual Quantum Advisory contact if you wish to discuss the content of this document in further detail.
The full levy rules can be found here.
Quantum Advisory
January 2022