PPF zero levy met with relief by schemes and employers
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The Pension Protection Fund will not raise a levy in 2025-26, a move hugely welcomed by defined benefit schemes, as well as sponsors feeling the impact of higher employment costs.
The scrapping of the levy for 2025-26 was made possible through draft legislation and the PPF’s £14.1bn reserve. The lifeboat had previously announced the latest levy would be £45m, down from an initial £100m estimate. The fact it has now been moved to zero will be welcomed by 5,000 schemes and their sponsors covered by the PPF.
When setting this year’s levy rules, the PPF had included a provision that allows it to recalculate the conventional levy to zero “if appropriate legislative changes were brought forward, and sufficiently progressed, this year”, the fund said.
The pension schemes bill, which will give the PPF greater flexibility in setting the levy, has passed through committee stage in the House of Commons, leading the PPF board to invoke the provision that legislation is now sufficiently progressed, if not yet passed.
“In making this decision at this stage, the Board’s intent was to provide timely clarity for DB schemes and their sponsors, enabling them to better make any associated financial decisions this year,” the PPF justified its move ahead of the law taking effect.
Under current legislation, the fund cannot change the levy by more than 25%, meaning a zero-rate was previously impossible.
“Rigid rules currently leave pension schemes paying millions into the Pensions Protection Fund 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,” said pensions minister Torsten Bell.
PPF chair Kate Jones added: “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.”
The PPF said it will continue to support policymakers as they consider the bill and “in due course” will engage with industry on its levy plans for 2026-27, which will be informed by the remaining passage of the pension schemes bill.
Pension fund representatives have expressed relief about the announcement. Zoe Alexander, executive director of policy and advocacy at Pensions UK, welcomed the timing of the decision and said the schemes the PPF protects have moved from a deficit to a significant aggregate surplus in recent years while claims on the PPF have been very low.
“The reduction of the levy to zero is positive news for defined benefit 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,” she said.
Jon Forsyth, who chairs the DB Committee at the Society of Pension Professionals, echoed the view that the early introduction of the zero levy is positive news for schemes.
“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,” he said.
Employer associations were delighted about the change. Matthew Percival, future of work and skills director at the Confederation of British Industry, said: "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.”
Charles Malcolm-Brown, chair of the SME Pension Consultation Group and member of the PPF’s SME Levy Forum, said: “SME sponsors are mightily relieved by the PPF board’s decision to suspend the levy. 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.”
The scrapping of the levy for 2025-26 was made possible through draft legislation and the PPF’s £14.1bn reserve. The lifeboat had previously announced the latest levy would be £45m, down from an initial £100m estimate. The fact it has now been moved to zero will be welcomed by 5,000 schemes and their sponsors covered by the PPF.
When setting this year’s levy rules, the PPF had included a provision that allows it to recalculate the conventional levy to zero “if appropriate legislative changes were brought forward, and sufficiently progressed, this year”, the fund said.
The pension schemes bill, which will give the PPF greater flexibility in setting the levy, has passed through committee stage in the House of Commons, leading the PPF board to invoke the provision that legislation is now sufficiently progressed, if not yet passed.
“In making this decision at this stage, the Board’s intent was to provide timely clarity for DB schemes and their sponsors, enabling them to better make any associated financial decisions this year,” the PPF justified its move ahead of the law taking effect.
Under current legislation, the fund cannot change the levy by more than 25%, meaning a zero-rate was previously impossible.
“Rigid rules currently leave pension schemes paying millions into the Pensions Protection Fund 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,” said pensions minister Torsten Bell.
PPF chair Kate Jones added: “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.”
The PPF said it will continue to support policymakers as they consider the bill and “in due course” will engage with industry on its levy plans for 2026-27, which will be informed by the remaining passage of the pension schemes bill.
Pension fund representatives have expressed relief about the announcement. Zoe Alexander, executive director of policy and advocacy at Pensions UK, welcomed the timing of the decision and said the schemes the PPF protects have moved from a deficit to a significant aggregate surplus in recent years while claims on the PPF have been very low.
“The reduction of the levy to zero is positive news for defined benefit 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,” she said.
Jon Forsyth, who chairs the DB Committee at the Society of Pension Professionals, echoed the view that the early introduction of the zero levy is positive news for schemes.
“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,” he said.
Employer associations were delighted about the change. Matthew Percival, future of work and skills director at the Confederation of British Industry, said: "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.”
Charles Malcolm-Brown, chair of the SME Pension Consultation Group and member of the PPF’s SME Levy Forum, said: “SME sponsors are mightily relieved by the PPF board’s decision to suspend the levy. 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.”
