The Pension Protection Fund (PPF) has published a consultation on levy rules for 2021/22, including a proposal to halve the levy for schemes with less than £20m in liabilities.

The proposed reduction will be tapered so that only schemes with £50m or more in liabilities will be charged in full, which the PPF hopes will benefit the schemes with SME employers.

It has also proposed cutting the cap on the amount of levy paid by any individual scheme from 0.5 per cent of liabilities to 0.25 per cent.

The PPF estimates that it will collect £520m in levy payments in 2021/22, down by £100m in comparison to the £620m estimated for 2020/21.

It attributed the decrease to the PPF being in a “strong financial position” at the start of the pandemic, an update in the way scheme underfunding is calculated and the proposals being put forward to support schemes in the coming year.

Although the PPF expected Covid-19 to have a “limited impact” on levy bills in 2021/22, it warned that the effect on 2022/23 invoices “could be substantial – with many employers seeing a worsening in their levy score”.

Furthermore, it decided that the normal process of having a three-year plan would be put on hold until 2023/24 due to the unpredictability of the Covid-19 pandemic.

“The current environment makes setting an appropriate level for the levy particularly challenging,” commented PPF executive director and general counsel, David Taylor.

“There is significant uncertainty about how claims and risks will develop so we’ve moved away from a multi-year approach to setting the rules. This means we can respond dynamically when setting the amount of levy we collect each year.

“In time, we’ll need to consider what further steps to take to ensure an appropriate levy in 2022/23 and beyond, alongside our review next year of the PPF’s funding strategy. But for now, we believe the changes we’re proposing for 2021/22 will provide valuable support to the schemes and employers.”

LCP partner and former Pensions Minister, Steve Webb, warned that the proposed reduction for 2021/22 was likely to be “only a temporary respite”.

He continued: “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”.

The levy consultation is open from 29 September to 24 November.

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