DWP to consider changes to PPF levy [updated]

The lifeboat fund for defined benefit pension schemes has been lobbying the government to allow it to reduce the levy to zero without compromising its ability to raise funds in the future.

In a statement this morning (30 January), the DWP said it was considering granting the PPF more flexibility over the levy.

Following discussions with government officials, the PPF’s board has provisionally introduced a power to drop the levy to zero in future, and reduced its estimate for the 2025-26 levy by more than half to £45m. Almost all schemes (99.7%) would expect to see a lower levy under this model.

The new levy will only be confirmed through changes to primary legislation – namely the Pensions Act 2004. This currently limits the PPF to an annual levy increase of 25%, but this also means that a levy of zero would technically mean the lifeboat fund would be unable to raise further funds.

“This proposal, in addition to our plans to unlock billions of surplus from defined benefit pensions schemes, shows we are laser-focused on making the long-term changes that will grow our economy.”

Torsten Bell, pensions minister

Torsten Bell, the new pensions minister, said: “The Pension Protection Fund is an important safety net for many pension savers. It is also one in a strong financial position, so it is time to change outdated rules that would force the PPF to levy pension schemes unnecessarily. This will free up funds that allow pension schemes or employers to invest, supporting savers and growth.

“This proposal, in addition to our plans to unlock billions of surplus from defined benefit pensions schemes, shows we are laser-focused on making the long-term changes that will grow our economy.”

In its latest annual report, the PPF reported £13.2bn in reserves over what it requires to pay benefits. This strong funding position has led the organisation to explore changes to the levy it charges defined benefit funding schemes.

Kate Jones, the PPF’s chair, said: “We warmly welcome the government’s intent to give us greater flexibility to reduce the levy.

“Levy payers have long made a vital contribution to the PPF’s funding. We ultimately don’t want to charge levy payers any more than we need. This positive announcement is an important step towards that end goal.”

Chris Ramsey, chair of the Society of Pension Professionals’ (SPP) defined benefit committee, said:“As we have often said, if a legislative change can be secured in the 2025 Pensions Bill, this would mean pension schemes would no longer have to bear an unnecessary multi-million pound annual cost, and this money could instead be used to help members, employers and the wider economy.

“We are not quite there yet but today’s announcements from the PPF and DWP represent great strides in the right direction and are very much welcomed by the SPP.”

A spokesperson for the Universities Superannuation Scheme (USS) said: “The Pension Protection Fund provides a valuable safety net to defined benefit pension scheme members. While we would not expect USS to ever make a claim, the PPF’s role in underpinning their benefits is welcome reassurance to our members.

“Given the PPF’s growing surplus we welcome the recognition… that the time is now right to reduce the money collected from pension schemes. We encourage the government to speedily bring forward the legislative changes needed to support the PPF decision.”

Jones added: “In addition to changes on levy, we’d welcome further government consideration of PPF and Financial Assistance Scheme indexation rules. We will continue to work constructively with DWP in the interests of all our stakeholders.”

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