The Pension Protection Fund (PPF) is currently consulting on a proposed new levy rule for schemes without a “substantive employer” sitting behind it, for example, a shell company which no longer has a genuine business. In circumstances such as this, the risk of a call being made on the PPF cannot be accurately measured, and the PPF’s standard methodology for calculating the levy would cease to be suitable.
The PPF has set out for consultation a levy charging methodology which aims to appropriately price the risk that scheme’s operating on this basis would pose to the PPF. The PPF’s intention is that such schemes – expected to be few in number –should be charged a fair levy which does not contain any in-built cross subsidy, either from or to other schemes. The PPF does not expect this new rule to be widely applied but considers it appropriate to have a rule in place in case it is required. Any new rule would only apply to schemes that continue without a substantive sponsoring employer as a result of arrangements put in place after the start of 2017, and the PPF has stated that it is possible that there may be no schemes charged on the proposed basis for the 2017/18 levy year. The consultation closes at 5pm on 6 March 2017.
Although the PPF has not yet finalised its 2017/18 Levy Determination, it has confirmed that the only change to the provisional Determination issued in December will be in respect of schemes without a substantive sponsoring employer and the final Determination will be published by 31 March 2017. The first deadline for schemes to submit information to the PPF for calculation of their levy is 31 March 2017. Accordingly, if schemes are intending to take action to minimise their PPF levy, e.g. putting in place a contingent asset, they should do so now.
In general, few changes have been made to the provisional Levy Determination compared with the Determination for 2016/17, in keeping with the PPF’s aim to keep the levy rules as stable as possible until the next triennium in 2018/19. The PPF has confirmed that the levy estimate 2017/18 will also remain unchanged (from 2016/17) at £615m in total.
Points where the levy rules have been changed include the following:
Adoption of FRS 102
Schemes can notify Experian where they consider that the employer’s adoption of the new FRS 102 accounting standard would cause an artificial movement in their insolvency risk score. The new rules extend the opportunity for schemes to certify impacts from the adoption of FRS 102 where accounts from different years have been taken into account but calculated on a different accounting basis.
Non-sterling currency exchange rates
The levy rules include the PPF’s previously announced changes regarding the way accounts in a foreign currency are converted into sterling in the Experian model.
Finally, schemes should note the following deadlines for submission of information to the PPF :
- submission of scheme data via Exchange (including section 179 valuations) for use in levy calculations: midnight on 31 March 2017;
- certifying new contingent assets and submitting documents: midnight on 31 March 2017;
- certifying asset backed contributions: midnight on 31 March 2017;
- re-certifying existing contingent assets: midnight on 31 March 2017;
- certifying "immaterial" mortgages with Experian: midnight on 31 March 2017;
- certifying deficit-reduction contributions made on or before 31 March 2017: 5pm on 28 April 2017; and
- final certification of full block transfers that have occurred up to and including 31 March 2017: 5pm on 30 June 2017.
The PPF’s stable approach, making minor changes to the levy rules in line with its earlier consultation document, is to be welcomed. Final changes to the 2017/18, Determination, following the conclusion of the consultation on the proposed new levy rule for schemes without a substantive sponsoring employer, are unlikely to affect many (if any) schemes in the upcoming levy year and schemes should proceed on the basis of the provisional Determination unless they are likely to be affected by the proposed new rule.