In December last year the Pension Protection Fund (“PPF”) published its policy statement and final determination for the 2015/16 levy year. The determination sets out the different ways the levy will be calculated for a scheme in respect of the financial year 1 April 2015 to 31 March 2016, depending on how the scheme is classified.
A new requirement is that all schemes which have identified themselves as a “last man standing” (“LMS”) scheme must confirm that they have taken legal advice which supports that conclusion. A scheme will only be treated as a LMS scheme for the purposes of the levy if it has met these requirements and confirmed this to the Pensions Regulator (“TPR”).
Under the PPF’s determination, a LMS scheme is a multi-employer scheme, the rules of which do not include any requirement or discretion for the trustees to “segregate assets” for affected members where an employer ceases to be a participating employer and, for the purposes of the determination, a legal opinion has been given to that effect.
“Segregation” is often referred to as a “partial winding up”, and, if followed through, would involve a departing employer being only responsible for its own current and former employees. If no segregation can occur, by contrast, the liability of departing employer is retained in the scheme, creating a last man standing scheme.
Claims do not arise for the PPF on LMS schemes until the last employer becomes insolvent and therefore there is a reduction in the levy for LMS schemes. The PPF is concerned that there may be some misreporting of scheme structure.
All schemes that have been classified as a LMS scheme on their scheme returns will be contacted by TPR after 31 March 2015, requiring them to certify that they have received legal advice regarding their structure. Schemes will have until 29 May 2015 to respond.
The PPF has confirmed that it only expects schemes to take legal advice in the first instance (not each time the confirmation is given), unless scheme rules regarding the scheme’s structure subsequently change.
Last man standing schemes should ensure that they have legal advice confirming this structure for TPR’s deadline of 29 May 2015 and may wish to seek this in advance of 31 March 2015 (the deadline for submitting scheme returns on Exchange). If legal advice is not obtained, the PPF will not recognise the scheme’s status as a LMS scheme.