The Pension Protection Fund has published its 2016/17 Levy Determination (and accompanying guidance) and a Policy Statement, outlining the responses to its draft Determination issued in September for consultation. The Determination will govern the calculation of the PPF levy for 2016/17, which is estimated to be £615m in total for 2016/17.
In general few changes have been made to the consultation draft and for the next two years the PPF aims to keep the levy rules as stable as possible.
Points where the levy rules have been changed include the following:
Asset-backed Contribution (“ABC”) Arrangements
The PPF has introduced a “lighter touch” to the recertification of ABC arrangements. The valuation required for recertification of ABC arrangements may be an updated version of the existing valuation, where in the valuer’s opinion this would be appropriate. In addition, where the underlying legal position has not changed, the valuer can rely on previous legal advice, provided the legal advisers confirm that it remains current.
Contingent Assets
The rules regarding recognition of contingent assets are largely unchanged from the previous year – a minor change will be made to the standard form Type C(i) agreement (letter of credit/bank guarantee) to allow an insurer to be a provider. The PPF notes that in its review of contingent assets for 2015/16 fewer assets were rejected than in the year 2014/15. However, the PPF emphasises the importance of trustees’ asking “probing questions”, in particular regarding:
- the knock-on effect of the employer’s insolvency on the rest of the group;
- the impact of the employer insolvency, and of the guarantor having to pay out, on inter-company balances, pooled cash funds and group-wide banking arrangements;
- the terms of intra-group arrangements (e.g. trade terms, ownership of IP rights) to consider the impact on the recoverable amount under a guarantee; and
- valuation of companies which might be sold to satisfy the guarantee liability.
Last Man Standing (“LMS”) Schemes
The PPF has now identified schemes that may have erroneously certified themselves as being a LMS scheme in previous years and will be contacting them shortly. The PPF aims to carry out re-invoicing of such schemes in a “measured and considerate fashion”. The first schemes to be contacted will be those that have advised that they no longer met the LMS definition for 2015/16, followed by the remainder of schemes that have not confirmed by 31 March 2016 that they have received appropriate legal advice to support their LMS certification.
Excluded Mortgages
The PPF will proceed with proposals to simplify recertifications for some mortgage exclusions. It will carry forward all mortgage certifications that were accepted for the 2015/16 levy (except for immaterial mortgages) and will review the credit ratings of all those employers/guarantors for which it has accepted certificates to check they are still at investment grade level. The levy rules have also been amended to allow entities to be able to demonstrate that they do not have secured borrowing by pointing to legal prohibitions on such borrowing.
Accounts
Interim accounts may be submitted where an entity has only been trading for a short period and otherwise Experian would have been unable to score them.
Finally, the PPF has amended most of its standard deadline times for the submission of scheme data (including hard copy contingent asset documentation) from 5pm to midnight on 31 March 2016, in order to align the position with the cut-off time for submitting valuation data to the Pensions Regulator.
Comment
The PPF’s stable approach, making minor changes to the levy rules in response to consultation responses, is to be welcomed. Further changes may come in 2017/18, however, following the introduction of the new financial reporting standard FRS 102. In the meantime, trustees should note the PPF’s comments in its Policy Statement regarding contingent assets and incorrectly declared LMS schemes.