What Is the PPF Levy?
The Pension Protection Fund (PPF) is funded primarily through levies charged to eligible DB pension schemes. Every scheme whose employer could potentially become insolvent pays an annual levy to the PPF, which uses the money to build reserves and pay compensation to members of failed schemes.
The levy has two components:
- Scheme-based levy — a flat charge based on the scheme's liabilities, shared across all eligible schemes
- Risk-based levy — a variable charge that reflects both the scheme's funding level and the financial health of the sponsoring employer. Schemes with larger deficits and weaker employers pay more
Why Has the Levy Dropped to Zero?
The PPF announced that its levy would be set to zero for the 2024/25 levy year, and this has continued into 2025/26. Several factors have combined to make the levy unnecessary:
Improved DB Scheme Funding
Rising interest rates since late 2022 have dramatically improved the funding position of DB pension schemes across the UK. Higher gilt yields reduce the present value of future pension liabilities, meaning schemes need fewer assets to cover their promises. The aggregate funding level of UK DB schemes has moved from significant deficit to substantial surplus.
Strong PPF Reserves
The PPF itself has built up reserves well above its target level. Years of levy income combined with strong investment returns have given the fund a comfortable buffer. The PPF estimates that its reserves are sufficient to cover expected future claims even without additional levy income for several years.
Fewer Expected Claims
With better-funded schemes and a relatively stable corporate environment, the PPF expects fewer schemes to enter the fund in coming years. Well-funded schemes are less likely to need PPF protection because they can secure members' benefits through insurance buy-outs even if the employer fails.
PPF Levy History
| Levy Year | Total Levy Collected | Status |
|---|---|---|
| 2020/21 | £520 million | Full levy |
| 2021/22 | £390 million | Reduced |
| 2022/23 | £260 million | Reduced |
| 2023/24 | £100 million | Significantly reduced |
| 2024/25 | £0 | Zero levy |
| 2025/26 | £0 | Zero levy |
What This Means for Employers
The zero levy provides direct financial relief to employers sponsoring DB pension schemes. For many companies, the annual PPF levy was a significant cost on top of regular pension contributions and deficit repair payments. The savings could be used in several ways:
- Accelerated deficit repair — employers may redirect levy savings into additional contributions to close remaining funding gaps
- Buy-out preparation — savings could be used to build up assets towards a full insurance buy-out, which would remove the pension liability from the employer's balance sheet entirely
- General business investment — some employers may use the savings for other purposes, particularly if their scheme is already well funded
What This Means for Scheme Members
For members of DB pension schemes, the zero levy is an indirect but positive signal. It reflects a healthier pension landscape where:
- Your scheme is more likely to be well funded, meaning your benefits are more secure
- The PPF itself has strong reserves, so the safety net remains robust if your scheme does fail
- More schemes are moving towards buy-out, which provides the highest level of benefit security
- Your employer faces lower pension costs, reducing the risk that pension obligations contribute to financial difficulties
Could the Levy Return?
Yes. The PPF reviews its levy annually, and there are scenarios that could lead to the levy being reintroduced:
- Falling interest rates — if gilt yields decline significantly, scheme funding levels would deteriorate, increasing expected claims on the PPF
- Economic downturn — a recession could trigger a wave of employer insolvencies, depleting PPF reserves
- Market crash — a sharp fall in asset values could push schemes back into deficit
- Regulatory changes — new funding requirements or changes to PPF compensation levels could alter the fund's financial outlook
However, the PPF's current reserve levels provide a substantial buffer against these risks. Most analysts expect the zero levy to continue for several years at minimum.
The Broader DB Pension Landscape
The zero PPF levy is part of a broader transformation in the UK DB pension sector. Record funding levels have prompted a wave of activity:
- Insurance buy-outs — a record number of schemes are completing buy-out transactions with insurers, permanently securing members' benefits
- Surplus sharing — the government has introduced rules to allow scheme surpluses to be shared between employers and members, recognising that many schemes now have more assets than needed
- DB consolidation — new superfund vehicles are emerging to consolidate smaller schemes, potentially offering better governance and investment returns
Next Steps
If you are concerned about the security of your DB pension, the zero PPF levy should provide some reassurance. Here is what you can do:
- Review your scheme's latest annual funding statement to check its current funding level
- Check whether your scheme is considering a buy-out or has entered into negotiations with an insurer
- Understand the PPF compensation levels in case your scheme were to enter the PPF
- Consider whether a pension transfer might be appropriate for your circumstances, particularly if your benefits exceed the PPF compensation cap