PPF levy advice
Helping you to understand and manage your annual PPF levy
The Pension Protection Fund (PPF) provides compensation to members of eligible occupational defined benefit (DB) pension schemes whose employers have become insolvent.
It was created under the Pensions Act 2004 after public concern was raised when employers sponsoring DB pension schemes became insolvent, leaving scheme members with significantly reduced benefits if the scheme was underfunded.
One of the PPF’s key sources of funding is the PPF levy, which is a charge levied annually on all eligible DB pension schemes. This can be a significant and volatile cost for a lot of companies.
The most significant component of the PPF levy, the risk-based levy, is based on an assessment of the risk that each individual scheme poses to the PPF. It is therefore a direct function of the size of each scheme’s deficit and the probability of insolvency of the scheme’s sponsoring employer(s).
Whilst the levy calculation is clearly defined, there are a large number of moving parts that an employer can influence to ensure that the levy amount paid is a fair reflection of the risk posed by their scheme. Examples of this include analysing the D&B insolvency risk scores, reviewing the asset information provided in the annual Scheme Return, and putting in place contingent assets.
Barnett Waddingham’s specialist PPF levy team can offer a wide range of services. We have an in-depth knowledge of the PPF levy calculation method, and the various levers that you can pull to ensure that the PPF levy is no higher than it should be. Our team can also provide an estimate of your annual levy invoice to assist with budgeting purposes – we provide around 150 PPF levy estimates each year for our clients.
Barnett Waddingham’s PPF levy team can offer specialist advice and a year-round comprehensive service to manage the size of your PPF levy. This will allow you to pass on responsibility for managing the PPF levy, ensure that your company’s actions do not inadvertently increase the PPF levy, and highlight the full range of options available to reduce the PPF levy.
Our team will produce an annual project plan setting out the key actions that will need to be undertaken during the year, and provide the necessary tools and knowledge to ensure that you do not pay more than your fair share.
As part of this service, we can also provide companies with a PPF levy dashboard, enabling you to understand the levy calculation, model mitigation actions, and assess the financial implications of changes in your annual accounting information.
Please contact Lewys Curteis if you would like to discuss this further.
We provide PPF levy management advice to a company sponsoring a multi-billion pound DB pension scheme. The PPF levy is a significant annual cost for the company, and our analysis showed that this cost was set to increase further in future years (into several £ millions). We advised the company on the various actions that they could take to mitigate the expected increase in the levy, including:
The actions taken as a result of our advice mean that the company’s PPF levy is now significantly more manageable, with the annual savings on the levy running into the millions of pounds.