Pensions Bulletin 2024/35

PPF proposes to again collect £100m in levy

The launch of the Pension Protection Fund’s 2025/26 levy consultation on 12 September 2024 confirmed it is again proposing to set the levy estimate at £100m, continuing at last year’s level, the lowest levy ever set (see Pensions Bulletin 2023/36).

To achieve this, but also to avoid a decrease in the pool of risk-based levy payers, the PPF is proposing to make the following adjustments to the calculation method:

• Reduce the Levy Scaling Factor from 0.40 to 0.35 and increase the Scheme-based Levy Multiplier from 0.000015 to 0.000018 (set to keep the proportion of the levy that is Scheme-based at the legislative maximum of 20%).
• Increase the asset and liability stresses, and update the factors used to allow for market data up to 31 December 2023.
• Update the section 179 liability valuation assumptions used, from version A10 to version A11.

Although the 2025/26 levy estimate remains the same as 2024/25, these changes will alter its distribution. The PPF expects these impacts to be limited, estimating that of the 37% of schemes expected to pay a risk-based levy under the proposals, around two-thirds will see a decrease in their risk-based levy.

The proposed increase to the Scheme-based Levy Multiplier means that across all schemes (ie including the 63% who the PPF expect will pay no risk-based levy in 2025/26) almost three-quarters could see a slight increase in their total levy from 2024/25. However, the increase to scheme-based levies from this change is expected to be very small, with an average increase of around £8 for each £1m in liabilities. Overall, 95% of schemes will still expect to see a lower total levy than for 2023/24, the last levy before the drop to collecting £100m a year.

In addition to the above changes the PPF is also proposing the following adjustments for the 2025/26 levy year:

• Simplifying the approach to certifying deficit reduction contributions, by extending the option of using the “Option Beta” methodology to all schemes and widening the definition of contributions that can be certified under this approach.
• Updating its webpage and levy waiver application form to make it clearer that it is open to considering waiver applications from schemes that have full insurance buy-ins.
• Updating its Alternative Covenant Schemes (ACS) guidance and asset and liability stress factors, with a full review of ACS methodology and rules planned after the introduction of the superfund legislation promised in the King’s Speech in July 2024.
• Updating the mapping of credit ratings to levy bands to reflect the move from three to two credit providers earlier this year.
• Making changes to improve customer service, including around access to electronic invoices and introducing the ability to download invoices from the PPF Score portal.

The PPF has also said that it will continue to work with the Government to seek legislative changes that would enable it to safely reduce the levy further, stating its aim is not to charge a levy longer than is necessary.

Consultation closes on 23 October 2024 and the final levy rules will be published in December 2024. 

Regulator says more on oversight of pension scheme administrators

On 12 September 2024, David Walmsley, the Interim Director of Supervision – Market Oversight at the Pensions Regulator, blogged about the Regulator’s intentions to expand its engagement with pension scheme administrators. This follows on from an initiative undertaken in 2023 with three “strategically significant” administrators which the Regulator considers has “yielded significant insights”.

From data gathered, the Regulator believes that 47 of the largest commercial and non-commercial administrators cover 90% of scheme memberships. The Regulator plans to invite 10 to 15 of these administrators to voluntarily collaborate with it, with the resultant learnings to be used to adopt a “light-touch approach” with the rest of the market within the next 12 months.

There are to be four areas of focus:

• Financial sustainability – the Regulator wants to acquire insights into how administrators operate to deliver value for money and high-quality service to their members.
• Risk and change management practices – the Regulator wants to better understand how administrators manage the complexity and volume of legislative and regulatory changes, coupled with challenges in staff recruitment, training, and retention.
• Cyber resilience – the Regulator wishes to steer administrators towards robust risk and incidence management practices and clear and fast member communications, ensuring that members are informed promptly and effectively.
• Tech and innovation – the Regulator has concerns about many administrators operating on legacy systems, with no plans to upgrade. 

Mr Walmsley points out that the administrator market “continues to evolve without formal regulation”, adding that although “administrators play a critical role in safeguarding the benefits of millions of savers” they cannot do it alone.

New Work and Pensions Chair elected

Debbie Abrahams MP has been elected Chair of the House of Commons Work and Pensions Select Committee. She succeeds Sir Stephen Timms who is now Minister of State for Social Security and Disability.

Mrs Abrahams is the Labour MP for Oldham East and Saddleworth and was the party’s Shadow Work and Pensions Secretary from 2016 to 2018 and prior to that the party’s Shadow Work and Pensions Minister from 2015 to 2016.  She served on the Work and Pensions Select Committee between 2011 and 2015, rejoining it in 2020.