PPF Levy Determination 2016/17 – PPF confirms claw-back

This article looks at the PPF’s recent draft 2016-17 levy determination and considers the effect on schemes that have been previously incorrectly identified as "last man standing" schemes.

12th October 2015

On 21 September 2015, the Pension Protection Fund (PPF) published its draft levy determination for 2016/17, together with an accompanying consultation paper.

In general, the changes proposed are minor. In the interests of stability and consistency, the PPF is not proposing to adjust the levy scaling factor or scheme-based levy multiplier this year, which is the second year of this levy triennium. There are some small simplifications of the technical reporting requirements, and confirmation that valuations and legal opinions in respect of asset-backed contributions that were certified for 2015/16 can simply be updated rather than new material produced. The deadline for submission of scheme data will be aligned with The Pension Regulator’s deadline for submission of valuation data of midnight on 31 March 2016.

The main area of concern for schemes arises from a part of the paper that is not actually subject to consultation. This relates to "last man standing" (LMS) schemes, which are multi-employer, non-Centralised Schemes, whose rules do not include any requirement or discretion for the trustees to earmark assets when an employer ceases to participate in the scheme (for example, if a company is sold or goes into insolvency).

This follows on from the PPF's request for LMS schemes to seek legal advice in order to confirm that their scheme is indeed LMS and inform the PPF by 29 May 2015. A number of schemes were found to have incorrectly classified themselves in the past, thereby receiving reduced levies.  The PPF has announced its intention to re-invoice the affected schemes, claiming arrears for past underpayments, "where it is economic to do so". This is in line with the PPF’s previous practice when schemes had self-reported such an error.

Before being re-invoiced, schemes will have the opportunity to show that they were correctly treated as an LMS scheme – for example, if they have recently ceased to qualify as an LMS scheme due to a relevant change in legal structure.

Schemes that did not respond to the PPF’s request for confirmation will have a further opportunity to report on the issue through the next scheme return. Schemes currently claiming the reduction for being LMS will be required to indicate again on the scheme return that they have legal advice which supports their LMS status.

The consultation paper notes that certain very large schemes have previously benefited from substantial levy reductions which will become repayable. It is possible that such schemes may challenge the invoices when these are issued.

Although detailed in the consultation paper, the PPF has stated that this claw-back of the reductions is not one of the areas subject to consultation, and so schemes will not be able to influence the PPF’s approach through the consultation process.

The consultation document itself is available on the PPF’s website. The consultation closes on 22 October, with the final rules due before the end of the year.