Consulting Actuaries

Ways to reduce your PPF levy

Royal London Consulting Actuaries

4 March 2013

The Pension Protection Fund (PPF) levy is expected to increase by 15% in 2013/14. We look at ways you can reduce your levy.

What's happening to the 2013/14 levy compared with last year?

The current economic conditions should have increased the amount to be collected by the levy in 2013/14 by 25%, but changes to the factors used in the levy calculation will mean a smaller 15% increase applies.

However, the levy to be collected is likely to rise further in 2014/15, particularly if current market conditions persist.

Given the current economic climate and the expected rise in the levy, it's likely many trustees and employers will want to achieve a reduction in their Scheme's individual levy.

Contingent assets

If you already have a contingent asset in place, or are looking to put one in place, the PPF has made some important changes for the 2013/14 levy year.

Click to read more about contingent assets

What can you do to reduce your levy?

  • Check that the information held on Exchange for the scheme is accurate and up-to-date. As mentioned in our article last year, the asset distribution held on Exchange should not routinely include "other" or "insurance policies"; these are catch all terms and are treated by the PPF as high risk investments. The Scheme's levy may be higher than necessary if the underlying asset distribution is not disclosed
  • Check that the information held by Dun & Bradstreet (D & B) on the Scheme's participating employers is accurate and up to date. You should also look at D & B's methodology used to set the failure score in order to gain an understanding of the factors which have an impact. A score can be appealed if an employer thinks it has been wrongly assessed.
  • The employer may be paying contributions to address a funding shortfall or may want to accelerate or make additional contributions before the end of March 2013. Asking the Scheme Actuary to certify these deficit reduction contributions should reduce the 2013/14 levy. 
  • Consider whether to make use of contingent assets. Prompt action would be required in order to put in place a contingent asset in time for the end of March 2013, as it can be a complicated process.

The PPF and CBI have also published joint guidance (PDF) for employers and trustees to help them understand how the levy works and to explain some of key ways that schemes can reduce their levy.

How can Royal London Consulting Actuaries help?

We can provide several additional services in relation to the PPF levy.

  • In order to help with budgeting, or to provide an indication of the impact of taking a certain course of action, we can provide an estimate of the 2013/2014 levy.
  • We can assist with the review and insertion of information on to Exchange.
  • If the Employer has been paying significant contributions to address a funding shortfall, contact the Scheme Actuary to ascertain if obtaining a Deficit Reduction Contribution Certificate could be beneficial.

To find out more, please contact us.