Pensions Bulletin 2025/46

PPF consults on a zero levy for conventional DB schemes in 2026/27 

The Pension Protection Fund has launched its consultation on the levy rules for 2026/27, which, if a levy were to be raised, would normally be invoiced in autumn 2026. Instead, and as expected, the PPF proposes to charge a zero levy for conventional DB schemes (ie those that are not “alternative covenant” schemes). 

The PPF intends to do this by setting rules to charge a zero levy for such schemes but recognises that such an approach under the current legislation would severely hamper it from setting a material levy in the future. Therefore, before setting such rules the PPF will require a very high level of confidence that the proposed changes in the Pension Schemes Bill will become law. It is not clear how this will be assessed, but the PPF does point out that the Bill has not yet begun scrutiny in the House of Lords. 

The PPF has also developed a fall-back option in which the PPF would re-use the levy rules for 2025/26 with minimal updates. Under this scenario, the levy calculations would be based on data already collected by the PPF for the 2025/26 levy year, which would keep the levy estimate for 2026/27 at £45m. As a direct copy of the 2025/26 levy rules, the 2026/27 levy rules would also contain a provision to enable the PPF to charge a zero levy for conventional schemes if legislation was brought forward and sufficiently progressed to enable it to bring back a material levy in the future. This was used for the 2025/26 levy year (see Pensions Bulletin 2025/38) and would be used once again to charge a zero levy. 

So either way, the PPF intends to charge a zero levy for conventional schemes. 

As for 2025/26, the PPF intends to collect risk-based levies from alternative covenant schemes for the 2026/27 levy year. It proposes to extend the definition of such schemes to ensure it fully captures schemes where the nature of the covenant fundamentally changes from one provided by a trading business to one provided by assets, whether such assets are held inside or outside the scheme. The PPF also proposes to use a more flexible approach to recognise these schemes’ risk reduction arrangements, as they are not expected to adopt the same arrangements as conventional schemes and are likely to evolve over time, pointing to the need for a more bespoke solution. 

The PPF is expecting to undertake a wider review of the methodology for alternative covenant schemes in the medium term.

As this is the first year that the PPF is not collecting a levy from conventional DB schemes, it confirms that: 

• It is not intending to send an invoice to schemes if the levy is set to zero.
• There are data items on the scheme return that are used only for levy purposes, but as the future of the levy cannot be confirmed before the 2026 scheme returns are released, schemes will still be required to complete these data items. The PPF is considering changes to help text guidance to lighten requirements where possible and will consider potential changes to the form in the longer term.  
• Schemes continue to need to complete section 179 valuations for the time being as this is a legislative requirement. Such valuations also assist the PPF in understanding the risk that schemes present to the PPF and the claims reserves the PPF needs to hold.
• Tier 3 asset information in the scheme return continues to be required for regulatory purposes other than for the PPF. The Pensions Regulator is also introducing new sub-classes to sit under the existing private / unquoted equity categorisation for these schemes (see the DB Scheme Return changes article below). 

Consultation closes on 5 January 2026. The PPF expects to publish final levy rules in early 2026, although it will allow as much time as possible for the Pension Schemes Bill to advance in Parliament before doing so. The rules must be set before 31 March 2026.

Stress testing of life insurers shows strong financial resilience of bulk annuity market  

The Prudential Regulatory Authority has released the first tranche of results from its life insurance stress testing exercise (“LIST 2025”), providing a market-wide view of how the solvency of major UK life insurers – particularly those active in the bulk annuity market – would be impacted by a severe and persistent financial market shock, and how they would respond. This is the first such exercise conducted in nearly three years and the first under the new “Solvency UK” regulatory regime for insurers.  

The aggregate results indicate a high level of resilience across the bulk annuity insurer market to a severe but plausible market shock event. This is hypothesised to take place in three stages and include a fall in interest rates (largely offset by the impact of widening spreads), credit rating downgrades and defaults on bonds and falls in residential property values, followed by certain management actions. 

For pension schemes and sponsors, the findings provide a clear, market-comparable view of the resilience across buy-in providers to the stress scenario. 

An LCP In Brief document explores what the stress test results mean in practice and offers context for those already in a buy-in or preparing for a transaction. The In Brief also looks ahead to the second tranche of results (to be released on 24 November 2025), which will show individual insurer outcomes. 

Society of Pension Professionals looks at DB surplus release 

In the light of proposed new flexibilities being legislated for through the Pension Schemes Bill, the Society of Pension Professionals has published a paper on surplus release from DB schemes. 

The paper explores a wide range of topics including what constitutes a surplus, the benefits and risks for scheme members and employers, considerations on the resilience of the scheme and the security of members’ benefits, implications for the scheme’s investment strategy, governance issues, when surplus release may not be appropriate, and how to evaluate a request for surplus release in practice. It also discusses the Pensions Regulator’s position and requirements, and wider implications for the DB landscape. 

The SPP says that whilst the plans for DB surplus release in the Pension Schemes Bill are “not without risks and will not be suitable for every scheme”, its paper “should prompt debate and lead to better informed actions, providing key decision makers, advisers and other stakeholders with a comprehensive view of the various issues that should be considered when contemplating surplus release”. 

Society of Pension Professionals looks at pre-1997 indexation 

The Society of Pension Professionals has also published a paper examining issues relating to the call by many for DB schemes to provide indexation on pre-1997 benefit accruals. 

Introduced by LCP partner Jon Forsyth, who is also the current Chair of the SPP’s DB Committee, the paper looks at the costs of protection, scheme member perspectives, trustee duties and considerations for employers, highlights some of the issues with a proposed across the board legislative change and comments on various potential solutions – including the possibility of discretionary payments. It also touches on the current debate in potentially using the Pension Protection Fund’s surplus to provide pre-1997 increases to its members.  

Pensions Regulator reports on data quality

The Pensions Regulator has published a market oversight report on data quality following a regulatory initiative that ran from October 2024 to September 2025, to target schemes that may not meet its expectations in this area. The Regulator’s main objective with this initiative was to challenge these schemes to demonstrate how they met its expectations, and to encourage them to review and improve data quality. The Regulator also wanted to gain insight into how schemes manage data in practice and use this to refine its communications and guidance. 

Focussing on schemes that had not previously provided the Regulator with the required data scores, the Regulator says most of these schemes have been able to provide information this time round, and it has observed widespread data cleansing and improvement activity. Publicising this report, the Regulator says that two of the key findings were: 

• While most schemes have made progress on cleansing personal data for dashboards, value data used to calculate benefits is often overlooked. Improvement plans are frequently informal or fragmented, and trustee engagement ranges from proactive oversight to near-complete reliance on administrators. 
• Controls and trustee focus vary widely. In many cases, administrators lead data assessments with limited trustee scrutiny. Whilst data issues are being addressed by some schemes, an historical underinvestment in data management by others means the industry faces a ‘data debt’. Regulator research published in July 2025 found that one in four schemes still hold some non-digitised records. And fewer than three in five schemes are confident in the accuracy of the common data they hold on their membership. 

The Regulator has also published revised member data guidance that consolidates all data-related guidance into one place and sets out clearer expectations and provides best practice examples to help schemes achieve better data management capability. 

Finally, after having completed a “deep dive” into the data quality controls and dashboards data preparations of the largest schemes in the UK, the Regulator is planning further work looking at the dashboards data preparations of the wider universe of schemes, for launch in 2026.

DB scheme return changes published 

Following on from an article in its October regulatory update (see Pensions Bulletin 2025/44), the Pensions Regulator has now published full details of its requirements for next year’s DB and hybrid scheme return, the submission deadline for which is 31 March 2026. The “New questions and updates this year” section sets out the new questions about liquidity and leverage and asset breakdowns on which we have previously reported. 

PDP publishes dashboard connection FAQs

With under a year to go now before the final connection deadline for schemes and providers within scope of the dashboard legislation, the Pensions Dashboards Programme has published some frequently asked questions relating to connection issues, with links to further support and guidance that is available. 

Shayala McRae – our “unsung hero”, but not anymore! 

Moving away from pensions technical reporting, we were all delighted that our colleague, Shayala McRae, won the “Unsung Hero” category at the Professional Pensions Women in Pensions Awards 2025 on 12 November 2025. Shayala is a member of LCP’s Pensions Research team and consequently helps put together our weekly Bulletins. But her role and commitment goes well beyond her “day job”, as is made clear in Professional Pensions LinkedIn post announcing her win. 

Shayala’s own reaction was very typical of her. She was “absolutely delighted” and “incredibly humbled” with the award, particularly as she noted as “It is not always easy to be ‘seen’ when working in more of a support role”. 

Well done Shayala!