PPF Levy 2021: Good news and new challenges
February 25, 2021
The Pension Protection Fund (PPF) levy rules for 2021 invoices were released at the end of January. We have pulled together a summary of the key changes to help trustees and sponsors consider what the rule changes may mean for you. It is especially important to remain on top of any changes if you have an existing parent company guarantee or have put in place a new or extended guarantee in the last 12 months.
The key changes this year are:
- Maintaining a flexible approach to deal with COVID-19. Some guarantors to pension schemes have been badly hit by the pandemic, impacting the value of support for pension schemes. Trustees will have to think practically about the risks to demonstrate the value of the guarantee to the PPF. To allow them to respond flexibility, while the uncertainty caused by COVID-19 remains, the PPF have confirmed they will review the levy rules on a year by year basis up to 2023/24.
- ‘Super priority’ creditors: the PPF requires trustees and advisers to consider whether other creditors could obtain ‘super priority’ as part of a moratorium under new insolvency legislation, which came into force in 2020. This can change the position and value of any guarantee to the pension scheme.
- Lower cap on the risk-based levy. To provide relief to higher levy payers, the cap on the levy payable has been halved from 0.5% to 0.25% of pension liabilities. For many schemes, particularly in bands 7-10, this may materially reduce the levy payable but in rare cases may reduce the PPF levy savings from a guarantee that supports the scheme.
- Small scheme adjustment for those with liabilities less than £20m. This will grant relief to smaller schemes, who have historically paid some of the highest levies as a proportion of liabilities. This will halve risk-based levies for schemes with less than £20 million in liabilities, with a tapered reduction for schemes with up to £50 million of liabilities.
We recognise how challenging the past year has been for both schemes and their sponsors in dealing with the impact of the pandemic. We therefore welcome the flexibility shown by the PPF in moving to a year by year review of the levy rules in the near-term. The small scheme adjustment and lower levy cap should also provide welcome relief to small schemes and higher levy payers.
Please visit our website for more information, or in touch using the contact details below.