The PPF recognises certain types of contingent assets in its calculation of the levy, including guarantees given by parent/group companies and undertakings (Type A contingent assets). Trustees and employers looking to put in place and/or re-certify a PPF contingent asset for recognition in the 2015/2016 levy year need to ensure that the prescribed form documents are prepared and submitted to the PPF online by 5pm on 31 March 2015. The PPF has updated its standard form documentation, accessible on the PPF website. A key development for Type A contingent assets is that trustees will need to give a more robust certificate regarding the guarantor’s ability to pay. The certificate will be in positive terms and require the trustees to certify a fixed amount, known as the ‘realisable recovery’ and confirm that they are reasonably satisfied, having made reasonable enquiries into the financial position of each certified guarantor, that each certified guarantor could meet the realisable recovery in full, having taken account of the likely impact of the immediate insolvency of all the employers (other than the certified guarantor where that certified guarantor is also an employer).
The realisable recovery must be a fixed cash sum representing the lower of a) any cap defined by reference to a fixed amount in the guarantee; and b) the amount which the trustees are reasonably satisfied that the guarantor could meet, if required. The amount certified as the realisable amount can be lower than the amount covered by the guarantee, enabling trustees to change the realisable amount each year without having to amend formally the terms of the guarantee. The PPF will apply an adjustment to a guarantor’s levy band to reflect the impact of the amount that it is guaranteeing on its gearing.
The PPF advises trustees to think carefully about the nature, type and realisability of the guarantor’s assets. Trustees should not place value on a guarantor's investments in the scheme employer unless they are confident that value would survive employer insolvency. When considering the impact of employer insolvency on the guarantor, effects could include:
- Reduction in value of employer shares or investments held by the guarantor
- Loss of inter-company debts owed by the employer
- Impact of any cross-guarantee
- Loss of an important supplier to the group
The PPF suggests that trustees may wish to obtain a letter of comfort from the guarantor about its financial position.
Schemes do not need to provide copies of their evidence with their contingent asset submissions but such information should be retained in case some form of detailed review is undertaken by the PPF later on.
Trustees and employers should be contacting their advisers now to ensure everything is in place for the PPF’s deadline.