The Pension Protection Fund (PPF) has estimated that the levy for defined benefit (DB) pension schemes in 2018 to 2019 will be £550m, 10 per cent less than the previous fiscal year.
Even though the current risks the pension lifeboat faces are significant, the PPF is in a strong financial position and still on track to meet its long-term funding target, which allowed this cut in the levt, said David Taylor, general counsel at the PPF.
He said: “We have, as always, sought to recognise levy payers’ desire to limit costs while maintaining an appropriate level of protection given the risks we face.”
Frank Field, Labour MP and chairman of the Work & Pensions select committee, welcomed the reduction.
He said: “I welcome these changes, which demonstrate that the PPF has acted on the committee’s recommendations.
“They are good news for mutual societies, smaller businesses and their pension scheme members.”
At the same time, the pensions’ lifeboat is also consulting on additional proposals on the risk reflectiveness of the levy, which would mean a drop in the charge to SMEs by a third overall.
If these rules were in place now, around two in three schemes would have seen a lower 2017 to 2018 levy, with around one in five schemes seeing an increase.
The PPF also confirmed that it is introducing new rules to insolvency risk assessment, announced last March.
The lifeboat will also start taking large sponsoring companies credit ratings into account when deciding the levy rate to charge defined benefit schemes.
Last March, the lifeboat also introduced new levy rules for DB funds that have no sponsoring employer, known as “zombie schemes”.
The PPF will be consulting on the new proposals and the draft levy rules for 2018 to 2019 from 27 September to 1 November.
After the levy consultation closes, the lifeboat will finalise the rules and publish the levy determination in December.
According to Chris Ramsey, associate at Barnett Waddingham, the 10 per cent reduction in the levy “will of course be welcomed by levy payers”.
Regarding the proposed changes, Mr Ramsey said these are “a positive step forward in addressing some of the inequalities in the levy system”.
He said: “However, there will inevitably be winners and losers.
“Over 1,000 schemes are expected to see an increase in their levy, with some seeing a significant increase.
“The changes will also affect different types of employer in different ways, with larger employers in general faring worse.”
To Mr Ramsey, the PPF levy system still remains very complicated.
He said: “Levy payers need to take advice to ensure that they understand the consequences of the proposed changes and are not paying a higher levy than they need to.”