In August, the Pension Protection Fund (PPF) issued a press release to allay concerns that it would be negatively affected by the current economic situation.
Legal developments - appeals launched
In June 2020, the Administrative Court upheld the PPF’s general approach to calculating increases in compensation as a result of the Hampshire ruling .
However, it also required the PPF to make sure that members and survivors each receive at least 50% on a cumulative basis of the actual value of the benefits that their scheme would have provided. The PPF lodged an appeal with the Court of Appeal on 20th August 2020 concerning that latter point.
The Department for Work and Pensions has also lodged an appeal against the ruling in the recent Hughes case that the compensation cap is unlawful. For the time being, the PPF will continue to apply the cap on the existing basis.
PPF consultation on changes to the 2021 / 22 levy
The PPF has now published its consultation on changes to the levy rules in 2021 / 22.
The consultation closes on 24th November 2020.
In the consultation, the PPF acknowledges the challenges faced by the economy due to COVID-19, and the long-term impact that this will have on the sustainability of employers and their related schemes.
Due to these challenges, the PPF wants to adopt a more flexible stance to levies and to be prepared to adjust the rules annually rather than the current three-year period.
The consultation proposes two important developments for 2021 / 22:
The levy for schemes with less than £20m in liabilities will be halved, and this reduction will be tapered so that only schemes with more than £50m in liabilities will be subject to the full charge
The cap on the amount of levy paid by any individual scheme will be reduced from 0.5% to 0.25% of its liabilities.
With these proposed changes in place, the PPF expects to collect £520m in 2021 / 22, £100m less than in 2020 / 21.
While there is a case for the PPF increasing the levy in 2021 / 22 due to an expected rise in employer insolvencies, the Fund entered the pandemic in a strong financial position, which has allowed it to avoid any immediate changes to its levy strategy.
Capita comment
The new annual review of levies by the PPF will require schemes to monitor developments to the levy more closely going forward.
However, a reduction to both the levy for smaller schemes and the levy cap generally will be welcome news for pension schemes in financial difficulty.