The Pension Protection Fund (PPF) has increased its levy estimate for 2020/21 by 8 per cent to £620m due to projected increases in scheme liabilities and underfunding.

The changes in risk has resulted in the levy collection estimate to be £45m higher than the 2019/20 estimate of £575m.

Scheme funding is expected to have deteriorated by 2020/21 due to a significant decline in gilt yields over recent months, which will have increased scheme liabilities.

According to the PPF, the past year has the highest level of claims in its history and the external environment is “particularly uncertain”.

Furthermore, it said that there are pension-specific uncertainties, including from court cases regarding the UK’s obligation to protect pension incomes in the event of insolvency, which have the potential to affect the risks the PPF faces, the level of compensation it pays, and the level of PPF funding and of future claims.

The PPF has launched a consultation which confirms that it does not intend to make substantive changes on how levies will be calculated for 2020/21.

Commenting on the announcement, PPF executive director and general counsel, David Taylor, said: “I am pleased to confirm that we plan to use the same approach to calculating the levy in 2020/21 that we have been using this year.

“However, the environment in which we are operating has changed. In particular, we have seen significant increases in scheme underfunding driven by declines in the yields on gilts.

“This represents an increase in risk to us and although we smooth scheme funding over five years we do still expect levy collections to increase as a consequence.

“As we aren’t changing the rules, and bills are based on the actual risk of individual schemes, the impact on individual schemes will depend very much on their specific circumstances.”

The consultation asks stakeholders to comment on how levy rules might need to be developed in the future for schemes without a reliable sponsor and commercial consolidators.

The consultation also sought feedback on revised guidance for completing contingent asset guarantor strength reports.

Taylor concluded: “While our reserves decreased from £6.7bn to £6.1bn in the last financial year and we continue to face significant risks and uncertainty, our funding position remains strong and we’re on track to achieve our long-term funding objective.

“We continue to monitor the situation closely and, as we’ve always made clear, will adjust the levy in future years if necessary to respond to circumstances.

“We are grateful to stakeholders for their ongoing support and engagement and look forward to hearing their views on the consultation.”

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