29 September 2020
The Pension Protection Fund have today published a consultation on the level and structure of their levy for 2021/22.
Key features include:
- a reduction in the overall levy to £520m;
- levy reductions for the smallest schemes, especially those with less than £20m in assets;
- a lower cap on the ‘risk-based’ levy for schemes with the highest risk levels;
However, PPF acknowledge that the effects of the Covid-19 pandemic are hard to forecast and therefore they have decided that the normal process of putting in place a three-year plan will be on hold until 2023/24.
In terms of the impact of Covid on levies, PPF acknowledge that it is too soon to see the impact of the current crisis in their data but that there could be a ‘substantial’ impact in years to come. Indeed, PPF say:
“For 2021/22, however, we expect COVID-19 will only have a limited impact on levy bills. This is because our insolvency risk model which we use to score the majority of employers uses accounts information filed with Companies House. Only when accounts are filed covering the period of COVID-19 will they feed through into insolvency risk scores. For the majority of our employers this won’t happen in time to impact levy scores used in the 2021/22 levies, the main effect will be seen in 2022/23 invoices. At that point, however, the effects could be substantial – with many employers seeing a worsening in their levy score” (para 1.2.2)
According to LCP partner and former pensions minister Steve Webb, there are several reasons to think that the real impact of the current crisis on the PPF could come in 2022/23 and beyond:
- some firms who will ultimately become insolvent have been supported by temporary government rescue schemes which are time-limited; PPF say in their consultation document: “As these come to an end we expect an increase in the level of insolvencies and a significant increase in claims on the PPF”. (para 1.2.1)
- even when a firm becomes insolvent, the ‘assessment period’ for determining if it enters the PPF can easily last a year or more;
In addition, as recent LCP research found, a key determinant of the impact of the crisis on the PPF will not be the total number of insolvencies but whether a small number of large schemes with large deficits enter at the same time. There is some evidence to suggest that such schemes are more likely to be found in traditional industries which have been hardest hit by the current crisis.
Commenting, Steve Webb said:
“There is no doubt that sponsoring employers will welcome the proposed reduction in the overall levy for 2021/22. Sadly, this is likely to be only a temporary respite. The impact of the current crisis on insolvencies has yet to be fully seen, not least because of temporary government support measures. As these unwind, we are likely to see more insolvencies and more claims on the PPF, especially in 2022/23 and beyond. PPF levies remain a key issue for sponsoring employers, especially for those with schemes whose funding position has deteriorated and whose covenant strength has weakened during the current crisis”.