Schemes encouraged to use savings to strengthen scheme position
- Funding review concludes the PPF is entering a new phase in its funding journey.
- £200 million levy estimate for 2023/24, down from £630m in 2020/21 and £390m in 2022/23.
- The PPF has redefined its funding objective to focus on maintaining financial resilience; a position created by excellent investment performance and reduced risk of claims.
- The levy can now be actively reduced without risking the long-term security of current or future members.
- Almost all PPF levy payers will see a reduction in their levy next year.
- Consultation launched on the 2023/24 levy rules.
The Pension Protection Fund (PPF) has today published the outcome of its Long-Term Funding Strategy review and announced in its 2023/24 levy consultation that it expects to collect £200m in levy next year, nearly halving that collected in the previous year with a reduction of £190m.
The funding review recognises that the PPF’s financial position has significantly strengthened in recent years, driven principally by strong investment performance, and a changed risk profile. As a result, the PPF is making a step change in its approach and entering a new phase where the focus will shift from building to maintaining its financial resilience.
As its funding approach matures the PPF has set out fresh funding priorities and a revised funding objective which will be assessed through a new ‘Financial Resilience’ test. To meet this target, the PPF’s reserves must provide a high level of confidence on the security of members’ benefits without relying on levy. Once funded above this level, any further growth in reserves would be expected to come primarily from investment returns, although the PPF Board will continue to consider the role of levy against any changes in the wider economic backdrop.
Oliver Morley, Chief Executive said: “We’ve made rapid progress on our funding journey in recent years and are further ahead at this point than we expected to be, largely through the excellent performance of our investment approach. We are close to achieving our Financial Resilience target, meaning we can now start to actively take steps to bring down the levy without risking current and future members’ benefits. This allows us to share the positive impact of our strengthened position with the 5200 schemes, and ten million members, protected by us. We hope that schemes will use the reduction in their levy payments to further strengthen the position of their own scheme and improve the outlook and security for their members. We expect almost all schemes will see a reduction and that our reliance on levy will further reduce over time.”
“This prospect of a materially lower levy collection in the future also presents us with a rare opportunity to simplify how the levy is calculated. We believe a simpler levy would bring benefits for all stakeholders. We have consulted with industry experts as we continue to shape our proposals and are grateful for their contribution. We now hope that many more stakeholders will respond to our consultation and help us shape our future levy rules.”
The consultation concludes at 5pm on 10 November 2022.
Notes to Editors
Key conclusions from the Funding Strategy Review & Proposals for 2023/24 levy
- Our funding strategy to date has served us well – our investment excellence, along with levy collection and a changed risk profile, mean we currently stand in a strong financial position.
- Recognising our financial strength and changes in risk, we’ve concluded we are entering a new phase in its funding journey – called our ‘Maturing’ phase.
- In this phase, our focus will increasingly move from building to maintaining our financial resilience.
- We’ve redefined our funding objective to ‘Maintaining our Financial Resilience’ and set out funding priorities to guide our future approach.
- Given our financial strength and in line with our funding priorities, the levy can now be actively reduced without risking the long-term security of current or future members.
- Almost all levy payers will see a reduction in their levy next year. Reductions will vary depending on scheme circumstances.
- As we reduce the levy, we will also reform the way it is calculated.
- We have launched our consultation on the 2023/24 levy rules which seeks to begin the journey towards our longer-term levy aims.
- Our key proposals for next year’s levy include:
- Reducing the sensitivity of the levy to changes in insolvency risk by halving the incremental increase between levy bands. This will reduce the volatility of bills and is a first step to enabling a simpler approach to insolvency risk in the levy;
- Across the board reductions by reducing the Levy Scaling Factor by 23 per cent and Scheme-based Levy Multiplier by 10 per cent.