Kate Jones: The legislative changes we’ve needed to further reduce the levy have made good progress, giving us the confidence to act decisively for this year’s levy.
The Pension Protection Fund (PPF) has announced it will not charge a conventional levy this year (2025/26) in a move that will save schemes and employers around £45m.
The lifeboat fund – which had already reduced its levy estimate by more than half from £100m to £45m in January – said that, when setting this year's levy rules, it had included a provision enabling it to recalculate the conventional levy to zero if appropriate legislative changes were brought forward, and sufficiently progressed, this year.
It said the Pension Schemes Bill – laid before parliament in June – had introduced measures which enabled the PPF to move to zero levy whilst preserving its ability to reinstate the levy in future if it were ever needed.
The PPF currently has a reserve of around £14bn but regulations currently operate a "use it or lose it" mechanism – limiting levy increases to 25% and effectively preventing a zero levy from being implemented as it would leave the PPF unable to rise levies again in the future.
The Pension Schemes Bill passed through its House of Commons committee stage earlier this month.
The PPF board said the Bill's parliamentary progress, along with the broad support among policymakers and stakeholders for this change, had led it to making the zero levy decision at this stage – a move it said would also "provide timely clarity for DB schemes and their sponsors", enabling them to better make any associated financial decisions this year.
The PPF said it would continue to support policy makers as they consider the Bill in its remaining parliamentary stages and would engage with the industry "in due course" on its levy plans for 2026/27, which would be informed by the remaining passage of the Bill.
It added that it continued to prioritise supporting the government's consideration of PPF indexation levels – work it said was "unaffected" by the move to zero levy.
PPF chair Kate Jones said: "The legislative changes we've needed to further reduce the levy have made good progress, giving us the confidence to act decisively for this year's levy.
"As we reach this significant milestone on our journey to financial self-sufficiency, we recognise the invaluable contribution levy payers have made over the past 20 years. We couldn't have delivered the protection and peace of mind to members without them."
PPF chief executive Michelle Ostermann added: "It's testament to the PPF's maturity that we're now in a position to be self-funding. By moving to zero levy, I'm delighted that we're directly supporting the government's pension reforms, delivering savings for schemes and enabling more growth supporting investment."
The government said the PPF's move not to charge a levy this year would "unlock" £45m of savings for some 5,000 defined benefit (DB) pension schemes – savings that it said could be used to "boost the economy through investments or top up pension pots".
Minister for pensions Torsten Bell added: "Rigid rules currently leave pension schemes paying millions into the PPF even when extra funding is not required.
"The Pension Schemes Bill will sweep away those constraints. This will support better funded pension schemes and greater investment by firms."
A ‘landmark' moment
Commenting on the announcement, Pensions UK executive director of policy and advocacy Zoe Alexander said the PPF was "unquestionably well-managed and well-funded" at a time when the DB sector it exists to protect had moved from a deficit to a significant aggregate surplus in recent years.
She said: "The reduction of the levy to zero is positive news for DB pension funds, their members and their sponsors, and is the culmination of collaborative working and constructive conversations between Pensions UK, its members and the PPF.
"We acknowledge the Department for Work and Pensions' contribution for bringing the necessary legislation forward and welcome the timing of this decision, which will provide much-needed certainty for schemes."
Society of Pension Professionals DB committee chair Jon Forsyth agreed. He said: "Having worked with the PPF and various stakeholders on this issue over the past 12-18 months, the SPP is naturally pleased that the PPF have today confirmed they will reduce the annual levy from the anticipated £45m to £0.
"Furthermore, we welcome the fact that the PPF has taken this decision now, rather than waiting until the Pension Schemes Bill becomes law. The PPF's decision means almost 5,000 affected DB pension schemes have certainty. These schemes will no longer have to bear an unnecessary multi-million-pound annual cost and, as we have often said, this money can instead be used to help scheme members, employers and the wider economy."
Brightwell chief executive Morten Nilsson described the move as a "landmark moment".
He said: "This is a landmark moment which will deliver meaningful savings for DB schemes and their sponsors, while maintaining the important safety net the PPF provides to the industry. We welcome the PPF's pragmatism and proactivity and the government's commitment to reform through the measures outlined in the Pension Schemes Bill."
Railpen chief executive Andy Bord added: "The members and employers of the railways pension schemes have contributed significantly to the PPF levy, so we and our trustee are delighted they have reached the milestone of financial self-sufficiency, that the protections the PPF brings remain secure, and that the PPF and government have actively listened to the industry. We encourage all parties to continue to focus on the best interests of members as we build on this important progress."
Insight Investment head of solution design Jos Vermeulen said: "The PPF/ DWP decision to scrap the risk-based levy this year comes as no huge surprise given the massive surplus that the fund enjoys. However, having a levy close to zero, would easily allow the Government to go half a step further and increase the level of scheme protection to 100%.
"This would come as a huge comfort to trustees currently weighing their options with regards to surplus release. It would also provide a boon for Government as schemes that release surplus run on for the long term, thereby providing ongoing support for the gilt market, and easing pressure on the UK's finances. They could even consider investing in long-term infrastructure projects and other growth initiatives!"
Barnett Waddingham partner Lewys Curteis added: "We welcome the confirmation that the Pension Protection Fund (PPF) levy will be set to zero for 2025/26. Given the PPF's strong funding position this is very much a case of "common sense prevails", but there has been a lot of hard work behind the scenes and the PPF has demonstrated both flexibility and pragmatism to get to this position. The £45m earmarked for this year's levy can now be put to better use to support schemes, companies and the wider economy."
Welcome news for business
Charles Malcolm-Brown, the chair of the SME Pension Consultation Group and a member of the PPF's SME Levy Forum, said SME pension scheme sponsors were "mightily relieved" by the PPF board's decision to suspend the levy.
He said: "Our Consultation Group has found the PPF the most transparent and engaging in the pension labyrinth within the confines of primary legislation. This will afford greater leeway to plan and invest in British business during challenging times and as such is warmly welcomed."
Confederation of British Industry (CBI) future of work and skills director Matthew Percival added: "With the latest CBI/Pertemps Employment Trends Survey showing that employment costs are now the top threat to labour market competitiveness, the PPF's decision not to charge a levy this year is welcome news for businesses. This has been made possible by the government removing the red tape that forced a levy to be charged even when one wasn't needed."
