PPF levy 2023/24: deadlines are approaching

• United Kingdom

• Pensions

09-02-2023

At the end of last year, the Pension Protection Fund (“PPF”) published its final levy rules for 2023/24, together with its policy statement and accompanying documents. 

Schemes should take careful note of the PPF’s levy submission deadlines as they are fast approaching with the key deadline being 31 March 2023.

Key points to note

The key points to note are:

• The expected total levy is £200 million which almost halves the 2022/23 levy estimate of £390m.

• 98% of schemes are expected to pay less levy in 2023/24.

• The proposal to significantly reduce volatility in levies and to incorporate new asset class information will go ahead as planned.

• Recent market movements will not impact funding strategy or proposed asset stresses, which take a long-term view of risk and are not guided by short term volatility.

• There is a small change to the levy rules and guidance in relation to asset backed contributions (“ABCs”), to take account of payments made to a scheme in exchange for the trustees’ interest in an ABC ceasing (for example, by sale or other arrangement).

• There are no significant changes to the treatment of contingent asset documents this year.

Key deadlines to note

Generally, the submission deadline for taking action to minimise the 2023/24 PPF levy is midnight on 31 March 2023. This includes the submission of scheme returns and electronic contingent asset certificates to the Pensions Regulator (the “Regulator”), and of ABC certificates and special category employer applications to the PPF.

Supporting documents for contingent assets, such as guarantor strength reports, must be emailed to the PPF by 5pm on 3 April 2023.

Other key deadlines include:

• Deficit reduction contributions: to be reflected in a scheme’s levy, these need to have been made before 31 March 2023 and certified on the Regulator’s Exchange system by 5pm on 28 April 2023
• Certification of full block transfers: these should be certified with the Regulator by 5pm on 30 June 2023.

The full list of deadlines is available on the PPF website.

Future direction of travel

Following a consultation last year, the policy statement sets out the PPF’s proposed long-term approach to the future development of the levy. This reflects its new funding strategy and its expectation of a material decrease in the levy in future.

The PPF identified four design principles for the future of the levy system:

1. Increasing the flexibility in the amount of levy it aims to collect
2. Increasing the flexibility to charge on the basis of the size of a scheme
3. Reducing the levy’s sensitivity to changes in insolvency risk so that it reduces volatility in the amount of the levy, and balance this by increasing the emphasis on underfunding risk
4. Applying different approaches to how the levy is calculated depending on scheme size.

The 2023/24 levy rules form the first step in this plan. The PPF says it wants to ensure the levy is fit for purpose, more stable for levy payers and more transparent and predictable. In general, its proposals were supported by respondents to the consultation. 

Some concerns were raised that large schemes and those with stronger sponsors could be expected to pay a larger proportion of the total levy. Given that levies for almost all schemes are now falling in absolute terms, this was primarily a concern in relation to a future scenario where the levy needs to increase substantially. The PPF considers this unlikely. The PPF’s modelling suggests that it is very likely to have reserves of £10 billion or more in five years’ time.

The PPF remains committed to ensuring the risk-based levy is risk-reflective, so that schemes with weaker sponsors continue to pay more per pound of underfunding.

An interesting question was raised in consultation responses about what would happen to any excess PPF reserves not needed to pay compensation. There is no legislative mechanism to deal with this so it would be a decision for government. The PPF plans to share feedback on this with the DWP.

Next steps

Schemes planning to certify or recertify contingent assets (or take other levy reduction steps) should start the planning process as soon as possible.

Existing PPF contingent assets do not necessarily have to be recertified every year (and some schemes choose not to do so because there will be no levy benefit the following year). Note, however, that a contingent asset can only be recertified (without all the additional requirements of a new certification) if it is fewer than five years since it was last certified. Trustees with contingent assets approaching five years since the last certification ought to consider whether recertification would be prudent to avoid the need for a full new certification in future.

The PPF plans to start issuing the first invoices for the 2023/24 year in autumn 2023. Invoices must be paid within 28 days of receipt.

The PPF is still considering the responses to the consultation in relation to its future direction of travel and possible ways of simplification. Schemes and sponsors should continue to monitor developments as regards how changes could affect future levies.