Pensions Bulletin 2025/27

Pensions & benefits DB pensions Policy & regulation Pension Schemes Bill

This edition: PPF Administration levy issued after two-year break, Pension Schemes Bill – Second Reading, Adam Smith Institute issues warning about unsustainability of State Pension, OBR points to unexpected costs of the triple lock and more.

Sunset seen through rocky outcrop in snow

PPF Administration levy issued after two-year break

After a two-year break, the Pensions Regulator has started to invoice PPF-eligible schemes, on behalf of the Secretary of State, for the administrative costs of running the PPF. The levy, once collected, is passed to the DWP, who in turn make a grant to the PPF to cover a proportion of its administrative expenditure.

The apparent rationale for collecting the administration levy once more, despite the PPF running a substantial surplus, is that the existing reserve, which resulted in no levy being collected in either the 2023/24 or 2024/25 financial years, can no longer support the DWP grant. The suspension of the levy was signalled by a review of the PPF, published in late December 2022 (see Pensions Bulletin 2023/01), in which it was recommended that the levy should be abolished and, once the existing reserve was expended, the PPF should be permitted to recover all its administrative costs via the main PPF levy. A two-year suspension was then confirmed by the DWP in October 2023 when it published a consultation on the general levy.

Although in April 2025 the PPF indicated that it was considering the necessary changes needed to enable the recommendation that the levy be abolished (see Pensions Bulletin 2025/14), it is not clear whether the 2022 abolition proposal was accepted by the DWP. In any event it requires a change to primary legislation – to adjust the permitted operation of the PPF so that such costs can be met directly from the main fund, and then remove the PPF administration levy (currently set out in section 117 of the Pensions Act 2004). These changes could have been delivered through the Pension Schemes Bill, but so far it is silent on the matter.

Until any change to the law, where a PPF administration levy is to be raised the amount is set by regulations, last reviewed in 2014 (see Pensions Bulletin 2015/07), at between £1.45 and £4.88 per member depending on scheme size. When set, it was expected to eliminate by 2022 what was a then deficit of running the PPF. To add to the uncertainty, there does not appear to be any record in the public domain setting out, over recent years, what amounts have been raised by the PPF administration levy, what grants have been made and whether there is now any surplus or deficit.

Comment

The invoice has come as a surprise to many schemes and some clear communication beforehand that they would face the resumption of the PPF administration levy would have been useful – something that could have been done many months ago so that these costs could have been budgeted for. An official announcement about this issue must now be made, covering not only the 2025/26 levy, but what is to happen in future years, especially amidst the many calls from the industry that it should be scrapped.

Pension Schemes Bill – Second Reading

The Pension Schemes Bill had its Second Reading in the House of Commons on 7 July 2025 ahead of which the House of Commons Library published its Research Briefing on the Bill (see News Alert 2025/02).

Introducing the Bill, Pensions Minister Torsten Bell spoke to its various aspects and rationale.

Much of the Bill attracted cross-party consensus. One area where there was less consensus was on mandating asset allocation in certain DC schemes. Although Mr Bell explained that this aspect of the Bill was intended only to provide a reserve power which was not intended to be used, strong concerns were expressed by the Conservatives as well as by some Labour MPs (including Debbie Abrahams, Chair of the Work and Pensions Committee) and the Liberal Democrats.

On the topic of superfunds one new Conservative MP expressed doubt as to whether the proposed authorisation and supervision regime would result in a significant uptick in superfunds from the one currently operating in the market.

Throughout the debate there were calls for the Government to tackle the issue of pensions adequacy, but the Government gave no further details about the forthcoming second phase of the Pensions Review which may well cover this.

Additionally, without mentioning the Virgin Media case directly, Mr Bell said that “the Government will also look to introduce legislation to give affected pension schemes the ability to retrospectively obtain written actuarial confirmation that historical benefit changes met the necessary standards at the time” (see Pensions Bulletin 2025/23).

Under-Secretary of State Andrew Western wrapped up the debate welcoming the “broad, if not entirely universal, support for the Bill”. Neither his, nor Mr Bell’s remarks suggested that any aspect of the Bill was likely to change, including the proposed mandation power, despite the strong concerns raised about from all parts of the House.

The Bill now proceeds to Committee stage which is scheduled to conclude by 23 October 2025. This Committee will first meet on 2 September and, on 8 July issued a call for evidence.

Comment

Second Reading for a Pensions Bill is often where a cross-party consensus first becomes apparent. And so, it was largely the case this time round – at least at a high level and in principle. However, as there are some meaty issues to unpack, particularly around mandation of investment and consolidation, at Committee stage it will be interesting to see how the Bill fares then, and beyond that, what the House of Lords makes of these proposals.

Adam Smith Institute issues warning about unsustainability of State Pension

The Adam Smith Institute (ASI) has issued a press release with an updated forecast of when it believes the State Pension will become “fiscally unsustainable”, which could be as early as 2036.

The ASI defines this is when the state will be spending more on welfare payouts, the greatest proportion of which is the State Pension, than it will be receiving in National Insurance tax receipts.

According to the ASI the increasing unaffordability of the State Pension is in great part due to the ratcheting effect of the ‘triple lock’ and that recent National Insurance increases have only had a small effect on its sustainability.

Consequently, the ASI is calling on the government to suspend the triple lock to protect the public finances.

Comment

The ASI has not publicised its methodology for its “dynamic model” on which its conclusions are based. But nonetheless, this press release is likely to be a factor in future debates about the triple lock.

OBR points to unexpected costs of the triple lock

In a report concluding that UK public finances are in a relatively vulnerable position, the Office for Budget Responsibility points to a number of mounting risks to the fiscal outlook, one of which is the sustainability of state and private pensions.

The OBR goes on to say that when it was introduced in 2012, initial estimates assumed that triple lock uprating would result in state pension increases averaging 0.2% above earnings growth, which would have cost an equivalent of £5.2bn in 2029/30. However, due to inflation being significantly more volatile and earnings growth being lower, the non-earnings element of the triple lock was triggered in eight of the 13 years to date. As a result, and despite the suspension of the triple lock for one year during the pandemic, the OBR says that the triple lock is expected to cost £15.5bn annually by 2029/30 – around three times higher than initial expectations.

Looking further into the future the OBR points to the significant uncertainties and risks around its projections of state pension spending, especially from the triple lock, depending on whether the future path of inflation and earnings is more like the volatile recent years or the less volatile previous couple of decades.

The report also highlights under-saving in private pensions and the likely fall in the pensions sector’s gilt holdings because DC schemes have a much lower share of assets held in gilts than DB schemes do.

Comment

Yet more concerns being voiced about the sustainability of the triple lock, but the Government appears to remain committed to it for the remainder of this Parliament.

Pensions Regulator to launch pensions data and digital working group

Last week, Paul Neville, Executive Director of Digital, Data and Technology (DDaT) at the Pensions Regulator, blogged on the topic of collaboration in the DDaT space, referencing the Regulator’s DDaT strategy (see Pensions Bulletin 2024/40) and announcing that the Regulator intends to launch a Pensions Data and Digital Working Group in the autumn.

He expects this group to become a pivotal force “in shaping a key enabler for the future of the pensions industry”. It will bring together industry and tech leaders to collaborate on open data standards, enhancing data sharing and prioritising digital integration, making use of the latest technology while promoting cultural change.

The blog also references some of the data challenges being faced by the pensions industry with a clear desire for substantial improvement to be delivered so that digital access is comparable to other industries

The blog includes a link to apply to join the group, for those interested.

Comment

The prospect of an industry working group was flagged last October. It now looks as if it will start to get going. Quite what it will deliver seems somewhat nebulous at present.

Pensions Regulator to launch working group on climate-related transition plans

The Pensions Regulator has announced that it will work with industry stakeholders, advisers and professional bodies to develop and test a voluntary net zero transition plan template fit for occupational pension schemes, based on the framework and guidance by the UK Transition Plan Taskforce.

This follows the earlier announcement of a consultation on taking forward climate-related transition plans by the Department for Energy Security and Net Zero, in which the convening of a pensions industry working group was mentioned (see Pensions Bulletin 2025/26). Membership of this working group is expected to include trustees, advisers and representatives of professional bodies

The Regulator says that the ultimate template will be capable of integrating climate, nature, societal factors and adaptation in a way that complements and supports the UK Sustainable Disclosure Requirement and associated Sustainable Reporting Standard. It will be presented to the Department for Work and Pensions later this year.

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.