PPF levy 2024/25: deadlines are approaching

 

Key points to note

The key points to note are:

• The expected total levy will be around £100 million which halves the 2023/24 levy estimate of £200 million. 
• This will be the lowest levy ever charged.
• 99% of all schemes are expected to pay less levy in 2024/25.
• There were no significant changes to the methodology this year.
• The PPF will stop using Moody’s as a credit rating provider but will continue to use S&P and Fitch – the impact on schemes is expected to be minimal.
• The PPF’s ability to reduce the levy is constrained by current legislation. It is expected that DWP will legislate to enable the PPF to take a more flexible approach to setting the levy, when parliamentary time allows.

 

Key deadlines to note

Generally, the submission deadline for taking action to minimise the 2024/25 PPF levy is midnight on 31 March 2024 - note that this is Easter Sunday and the Friday before is a bank holiday so in practice action will need to be taken in advance of the deadline. This includes the submission of scheme returns and electronic contingent asset certificates to the Pensions Regulator (the Regulator), and of asset backed contribution 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 before 5pm on 2 April 2024.

Other key deadlines include:

• Deficit reduction contributions: to be reflected in a scheme’s levy, these need to have been certified on the Regulator’s Exchange system by 5pm on 30 April 2024
• Certification of full block transfers: these should be certified with the Regulator before 5pm on 30 June 2024.

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

 

The longer term view

The historic low level of the levy reflects the strong funding position of the PPF and recent improvements in funding across the DB landscape.

The PPF is constrained in how low it can set the levy because of the current legislative framework. It noted that many respondents to the PPF’s levy consultation felt strongly that legislation should be amended to allow the PPF greater flexibility when setting the levy in the future, including the power to reduce this to zero.

The PPF said it has sent the consultation responses to the DWP which is considering them and expects to legislate, as soon as parliamentary time allows. Thought may also be given to setting out additional potential uses of PPF reserves, which were over £12 billion according to the PPF’s most recent report and accounts. It is worth noting that a general election in 2024 may delay relevant legislation being passed.

The PPF reflected that in the future it will continue to balance the amount of the levy so that it remains reflective of the risk that schemes pose to the PPF. The PPF also pointed out that not all risks can be captured by modelling (such as legal risks) meaning that reserves are still necessary to cover these.

 

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.

New guidance has been published on how to complete the asset breakdown section in the Regulator’s annual scheme return, which is used in the calculation of the PPF levy. Trustees should take note of this.

The PPF plans to start issuing the first invoices for the 2024/25 year in autumn 2024. Invoices must be paid within 28 days of receipt.

Schemes and sponsors should continue to monitor developments as regards how future changes could affect levies going forward.