The Pension Protection Fund (PPF) will charge no conventional levy on defined benefit (DB) pension schemes in the next financial year after the government finalised an amendment to the Pension Schemes Bill.
The move means the vast majority of the almost 5,000 DB schemes eligible for PPF protection won’t pay a conventional levy next year – the second year in a row this has happened.
A “proportionate” risk-based levy for schemes with an “alternative covenant” will still be charged. This includes schemes without a substantive sponsoring employer as well as DB superfunds.
However, the PPF said it would “work with industry to evolve its methodology” during the next financial year with a view to potentially adapting it to the nascent superfunds regime.
“Granting the PPF greater flexibility in setting the levy is a pragmatic reflection of the strengthened funding position of DB schemes and the sizeable reserve within the PPF.”
Morten Nilsson, Brightwell
Today’s announcement follows the final debates over the Pension Schemes Bill in the House of Lords, which concluded at the start of this week. The amendment allowing the PPF to charge a zero levy has been approved, which the PPF said had allowed its board to “conclude its decision-making” over next year’s levy.
Michelle Ostermann, the PPF’s chief executive officer, said: “This is an important time for pensions. Not charging a levy to conventional schemes in 2026-27 reflects the evolution of risk in this sector and will reduce costs for DB schemes and employers.
“We’re grateful to all those who responded to our recent consultation, and more broadly for the ongoing dialogue and productive engagement with our members and levy payers throughout our 20-year history.”
‘Welcome clarity’ on levy bills
Zoe Alexander, executive director of policy and advocacy at Pensions UK, said: “Prudent investment management and falling interest rates have combined to mean the vast majority of DB funds are now in a healthy surplus, posing a significantly reduced risk of having to rely on the PPF. The PPF is, in turn, unquestionably well-capitalised.
“With the end of the financial year approaching, and schemes in the process of carrying out financial planning for next year, this decision provides very welcome clarity on the costs schemes will face and eases some of the reporting burden they face.”
Morten Nilsson, chief executive officer at Brightwell, which manages the BT Pension Scheme, said the decision was ”a landmark moment” for PPF levy payers.
“Granting the PPF greater flexibility in setting the levy is a pragmatic reflection of the strengthened funding position of defined benefit pension schemes and the sizeable reserve within the PPF,” Nilsson said.
“With these changes now soon to be in law, I am delighted that the PPF board can reduce the levy for 2026-27 to zero, delivering the outcome we have been hoping for.”
Jon Forsyth, chair of the Society of Pension Professionals’ (SPP) DB committee, said: “The SPP has long recommended that the PPF be granted the flexibility to have a zero levy; has worked with PPF and DWP to help achieve this; and reiterated this support when we responded to the PPF consultation on the same last month. So, the announcement today is welcome news, especially for the 5,000 or so DB schemes that this covers.”
A policy statement and final rules for the 2026-27 levy will be published next month, the PPF said.
The conventional and alternative covenant levies are separate from the administration levy, which is charged to DB schemes by the Department for Work and Pensions to pay for some of the PPF’s operating costs.
The DB sector has been lobbying for this to be scrapped since an unexpected bill arrived last year. The Pension Schemes Bill also contains provisions to abolish this levy and enable the PPF to cover all its operating costs from its core fund.
