Pension Protection Fund (PPF) levy management

The PPF levy is one of the ways that the PPF funds compensation for members of final salary pension schemes if their employer goes bust.

The levy is payable by all UK final salary pension schemes whose members would be eligible for PPF compensation and can often represent a significant part of a pension scheme's running costs. It is therefore important that sponsors and trustees understand how the levy is calculated and do what they can to ensure it is managed where this is appropriate.

The levy is split into two parts:

The scheme-based levy (SBL): based on a set percentage of the scheme’s liabilities.

The risk-based levy (RBL): taking account of the risk of a sponsoring employer becoming insolvent and the amount of compensation that might then be payable if the scheme is underfunded. The RBL makes up at least 80% of the total levy.

The PPF also takes into account other factors in setting the levy including any Type A, B or C contingent assets which may be in place, the investment strategy adopted in the scheme and how strong the sponsor covenant is as measured by the Dun & Bradstreet rating.

Mazars Employee Benefits can provide more information about the above, including how these factors could impact on your levy, and whether any actions should be taken to manage your levy payments further.