It says something when the most stable part of the pension’s ship of state is its lifeboat. But at a time when UK pensions are in danger of hitting an iceberg, we can at least report we have a robust and well-run lifeboat – the Pension Protection Fund.
Of course the PPF as a success story is not going to make front page news, the PPF does not have a marketing budget for that (nor should it), but it has this blog and when I got a mail from its external communications team yesterday, I thought I’d share its good news.
This – is – what – it -said !
For the past year and more we have been reviewing our funding strategy. This review was long planned, but the timing proved especially apt given the improvement in recent years in our own financial position and scheme funding. The key conclusions from the review are summarised below:
- Our funding strategy to date has served us well – our investment excellence, along with levy collection and changes in our risk profile, mean we currently stand in a strong financial position.
- We’ve concluded we are entering a new phase in its funding journey.
- In this phase, our focus will increasingly move from building to maintaining our financial resilience.
- We’ve consequently redefined our funding objective to ‘Maintaining our Financial Resilience’ and set out new funding priorities to guide our future approach.
- Given our financial strength and in line with these funding priorities, the levy can now be actively reduced without risking the long-term security of members’ benefits.
- As we reduce the levy, we will also reform the way it is calculated.
- We have launched our consultation on the 2023/24 levy rules which seeks to begin the journey towards a lower, simpler, levy in the longer term.
In our levy consultation, we’ve confirmed our levy estimate for next year will be £200 million – nearly half what we are looking to collect this year (a reduction of £190 million). Almost all levy payers will see a reduction in their levy next year – the size of reductions for schemes will vary depending on their individual circumstances.
We expect our reliance on the levy will further reduce over time. Our hope is that a much reduced PPF levy next year and beyond will provide an opportunity for schemes and their sponsors to accelerate their progress towards their funding goals, thereby giving greater security and assurance to the c.10 million DB scheme members in the UK. Given recent events, we hope this provides some measure of reassurance to our levy payers and members, and the broader DB universe.
The PPF does provide reassurance , most especially that Government can run a pension fund with success.