The Pension Protection Fund (PPF) will no longer charge a levy this year, freeing up £45 million across 5,000 Defined Benefit (DB) pension schemes.
This annual charge on eligible defined benefit pension schemes funds the PPF, which is designed to compensate members if their employer’s business becomes insolvent.
Under previous legislation, “use it or lose it” rules meant that if the levy was reduced to zero it could never be reintroduced in future years.
However, this new reform to the PPF marks a significant change in flexibility, which means that the fund is able to respond to its own financial position, meaning that during times of surplus it can be reduced or eliminated altogether.
This landmark decision follows reforms in the Government’s Pension Schemes Bill, part of its wider Plan for Change to modernise the UK pension system.
What does this mean for those with DB pensions schemes?
Put simply the millions of pounds that would have been paid towards the levy will now be retained within DB pension pots.
For the employers that manage these schemes, this may allow them to increase scheme funding to increase contributions or reduce pressure on their own cashflow.
For employees and other members, the move ensures the security of their benefits in better-funded schemes while signalling a more efficient, growth-focused approach to pension regulation.
For DB sponsors and trustees, this is an opportunity to revisit funding and investment plans over the next 12–24 months.
Regulators have stressed that a zero levy does not remove risk, so monitoring remains essential.