The PPF levy is a function of the size of the scheme, the funding position of the scheme, and the probability of insolvency of the scheme’s sponsoring employer(s). It is calculated as follows:

Levy calculation

The PPF levy consists of two parts, which are calculated using the following formulae: 

  • Risk-based levy (RBL) = underfunding risk x insolvency risk x levy scaling factor 
  • Scheme-based levy (SBL) = smoothed liabilities x scheme-based multiplier

Underfunding risk

The information submitted in schemes’ annual returns to the Pensions Regulator is used to calculate underfunding risk. The asset and liability values are smoothed over a five–year period using financial market averages up to the levy year in question. This aims to reduce the effect of temporary market movements.

Investment risk

The PPF takes a scheme’s investment strategy into account when calculating underfunding risk, to reflect the fact that some investments are more risky than others.

‘Stressed’ asset values are calculated from the asset information submitted in scheme returns. To calculate the stressed value of assets, the PPF apply a standard test to the smoothed asset value (see page 4 of the PPF’s draft investment risk appendix):

  • Schemes with Section 179 liabilities that are greater than £1.5 billion are required to submit the results of some additional analysis (a 'Bespoke Stress Calculation'). This is to ensure that the investment risk for schemes that represent the largest funding risk to the PPF is reflected correctly. 
  • Schemes with Section 179 liabilities that are less than £1.5 billion may also carry out a bespoke stress calculation on their assets and submit the results to the PPF, but this is not compulsory. This approach tends to be most beneficial for schemes with a risk-reducing derivatives strategy in place.

Insolvency risk

Insolvency risk is based on the average of the month-end insolvency probabilities generated by the PPF-specific insolvency risk model. The average insolvency probability is placed into one of ten bands to reduce the sensitivity of the PPF levy to small changes in scores. The band into which the average insolvency probability is placed will determine the insolvency probability used in the levy calculation.  From the 2021/22 levy year and onwards, Dun & Bradstreet (D&B) will be the PPF’s insolvency risk provider for PPF levy purposes.

For schemes with more than one employer, the PPF calculate a weighted insolvency risk based on membership numbers.

Your PPF levy estimate

If you would like an indication of the size of your levy, we are able to provide an accurate estimate.

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