The PPF has set its levy estimate for 2018/19 at £550 million, a reduction of 10% on the current levy year. It has also published a consultation on the draft levy rules for 2018/19. Whilst the PPF believes that the new levy rules will result in a majority of "winners" some large pension schemes could see their levy increase significantly.

The levy estimate

The levy estimate for 2018/19 (the amount the PPF is seeking to collect) is £550 million, 10% lower than the £615 million levy estimate for 2017/18. The PPF states that it is able to set this figure due to its strong financial position and because it is on track to meet its long-term funding target. However, it does sound a note of caution that the amount it will actually collect for 2018/19 is far more uncertain than in a year when significant policy changes are not being made.

The levy scaling factor is expected to be 0.48 and the scheme-based levy multiplier 0.000021 (the same as for the 2017/18 levy year).

Draft levy rules

In March 2017, the PPF consulted on initial proposals for its levy policy for the third levy triennium, the three years starting from 2018/19. Those proposals focussed mainly on changes to the way insolvency risk is assessed for the purposes of the levy and included:

  • using credit ratings for rated entities and Standard and Poor’s (S&P) Credit Model for regulated financial institutions
  • changes to the current scorecard system involving rebuilding five of the eight existing scorecards to try to ensure that all scorecards are tailored to company size
  • changes to contingent assets and deficit-reduction requirements including:
    • updating the standard form contingent asset agreements and asking trustees and guarantors to re-execute agreements on the new basis, in order for them to be taken into account from 2018/19 onward,
    • for "the largest" Type A (group company) guarantees, requiring that certification of the amount available from the guarantee (in the event of employer insolvency) had to be backed by a report to trustees on the ability of the guarantor to meet the sum certified
  • simplifying the certification of deficit-reduction payments.

That consultation closed on 15 May 2017 and, having considered the responses received, the PPF is now consulting on its final levy policy proposals together with its draft determination for the 2018/19 levy year.

The proposals in the new consultation largely reflect those in the March consultation but there are some changes. For example, in respect of contingent asset agreements, it intends to consult further before publishing amended forms alongside the final Levy Rules for 2018/19. This means that new contingent asset agreements entered into for the 2018/19 levy year will have to be on these new forms but existing Type A and Type B agreements "are likely" to require action to be taken for 2019/20.

The current consultation also asks for views on some new proposals intended to improve the assessment of scheme underfunding including narrowing the range of levy rates used for the “best” levy bands (bands 1-4) and updating the way that investment risk is taken into account in the levy through asset and liability stresses.

Good governance

In its March consultation, the PPF had asked whether there was scope for incorporating good governance as a factor in reducing a scheme's levy bill. Having considered the evidence received, the PPF has decided that there is not a clear, and implementable, basis for recognising good governance in the levy calculation but it will keep the matter under review.

Winners and losers?

The PPF believes that, collectively, these changes will improve the risk reflectiveness of the levy. It claims that if these rules were in place now around two in three schemes would have seen a lower 2017/18 levy, with smaller and medium size companies in particular benefitting from an aggregate fall in levy of around a third.

However it also states that around one in five schemes would see a levy increase and it would appear that some large schemes could see their levy increase significantly.

Next steps

The consultation on the draft levy rules closes on 1 November 2017 and the final levy rules for 2018/19 are expected to be published in December 2017.

The PPF will host a webinar on Monday 16 October to explain the detail of the draft levy rules and answer questions from levy-payers. If you wish to take part, information on how to register for the webinar will be available on the PPF website shortly.

Act now

We would suggest that trustees and employers access the PPF’s portal and review their scheme data and scores as soon as possible in order to have sufficient time to make any changes to ensure that their levy calculation is accurate. The PPF intends only to use pension protection scores collected between 31 October 2017 and 31 March 2018 for the calculation of the 2018/19 levy year so it encourages trustees and employers to log on at: from early October 2017.

Trustees and employers should also be discussing the potential impact of the levy proposals on their scheme with their advisers and considering, as a matter of urgency, whether they are able to take steps to reduce the levy amount payable, for example, by implementing contingent asset agreements or agreeing deficit reduction contributions.