With the first PPF levy invoices based on the new Experian insolvency-risk assessment model starting to land on trustees’ door-mats, many schemes have made the unwelcome discovery that their PPF levy for 2015-16 has suffered a substantial hike. Around 200 schemes are reported to have seen levy rises in excess of £200,000.

In addition, in its recently issued consultation document on the 2016-17 levy determination, the PPF has confirmed that it is planning to issue extra invoices to those schemes which have mistakenly claimed a levy discount in previous PPF scheme years despite not meeting the PPF’s precise legal criteria to qualify as a “last man standing” scheme.

Some defined benefit schemes are therefore facing the PPF levy equivalent of a “double whammy” at present. However, in all cases, the PPF’s strict procedural rules on appeals against invoices will mean that schemes who believe they are being wrongly charged will need to act fast following receipt of their invoice(s) if they want to bring a challenge.

Challenging your 2015-16 invoice

The window has already closed for any appeal against the individual monthly scores which Experian has assigned to employers for the 2015/16 levy year, and against the industry categorisation assigned to the employer. However, employers and trustees can still appeal:

  • to Experian against the average (mean) score used, the levy band the scheme has been placed in, and the “levy rate” (ie. the insolvency probability) assigned to that levy band;  
  • to the PPF if they are unhappy with the outcome of an appeal to Experian, or if they believe there is an error in the levy calculation itself.

Anecdotal evidence suggests that there can be problems where (for instance) Experian has not managed correctly to match up an employer with the correct parent company, or where the employer or parent company is not required to file accounts with Companies House and therefore Experian may not have access to the most up-to-date figures.

Any appeal must be brought within 28 days of the invoice date (note: this is not the same as the date that the invoice is received by the scheme). The PPF’s guide to the 2015-16 invoice contains full details of the appeal process. The bringing of an appeal does not mean that a scheme can safely refuse to pay their invoice, and interest will in all cases be charged by the PPF 28 days from the date of the invoice. It is also worth noting that the outcome of an appeal may be that the invoice goes up, rather than down!

Last man standing scheme – PPF confirms claw-back

The PPF’s consultation on the draft 2016-17 levy determination contains, for the first time, official confirmation that the PPF will seek to re-invoice for previous levy years where schemes have previously claimed the “last man standing discount” when they did not in fact qualify for it. The PPF acknowledges that the relevant schemes simply made a mistake, but considers that “it is a step that … we must take out of fairness to all levy payers”.

Schemes who have reported to the PPF that they have received legal advice confirming that they are not a last man standing scheme despite having received the benefit of the discount in previous years can therefore look forward to being contacted by the PPF shortly. Schemes which failed to respond to the PPF’s enquiry for the 2015-16 levy year but which previously claimed the last man standing discount will be given a further opportunity to obtain the necessary legal advice and to report on it through their next scheme return, but it is clear that this is merely a temporary stay of execution.

Where a scheme has only recently ceased to satisfy the last man standing criteria (for instance, because of a relevant change in legal structure), it may be possible to satisfy the PPF that the discount was correctly claimed in earlier years. Otherwise, the scheme can expect to receive a sheaf of fresh invoices for prior levy years. The PPF has confirmed that the test will in each case be against the definition of “last man standing” which applied during the relevant levy year, but in fact, the definition has not changed materially for several years.

Note also that the PPF is at pains to point out that this matter is not one of the areas subject to consultation, and therefore schemes cannot influence the PPF’s approach through the consultation process.

Other points from the 2016-17 levy consultation

Schemes will be relieved to hear that the PPF is not proposing to make further substantial changes to the levy structure, recognising that schemes need a period of stability following the switch across to the new Experian model. Some areas where more minor changes are proposed include the following:

  • tweaks to the rules relating to the exclusion of mortgages from the insolvency risk-scoring process, so that for 2016-17, only immaterial mortgages will need to be recertified. All other existing mortgage certifications will simply be carried across, with the onus being on the PPF to check that those certifications are still valid;  
  • clarification of the rules relating to re-finance mortgages, to confirm that a re-statement or confirmation of an existing charge is not a new charge, and can therefore be certified for exclusion;  
  • where relevant company accounts are not published in sterling, the PPF will now use the exchange rate in force at the most recent accounts date (with the same rate being used when calculating trend variables over the past 3 years, to avoid fluctuations in exchange rates distorting the trend figures); and  
  • the PPF will be falling into line with TPR as regards deadlines for submission of data, and therefore will be moving its cut-off from 5 pm to midnight on 31 March.

A key area where comments are invited is the potentially detrimental effect on insolvency risk-scoring of the new FRS102 accounting standard. Previously, in multi-employer schemes where it was difficult to allocate the pension deficit precisely, individual employers could account for their pension liabilities on a defined contribution basis, with the defined benefit deficit only appearing in the consolidated accounts. This flexibility has been removed under FRS102, which applies to accounting periods starting on or after 1 January 2015. The net effect is likely to be that the principal employer, at least, will need to include the actual pension deficit in its accounts, with a knock-on impact on its Experian scoring and PPF levy.

Also invited are views from those who have carried out valuations on asset-backed contribution arrangements (ABCs) as to what changes might best achieve the PPF’s objective of reducing the burden of recertifying an ABC value, without increasing the risk that the value is overstated. It is encouraging to note that the PPF is hoping it will be possible for valuations on re-certifications to be “lighter-touch” affairs.

Finally, those schemes who have a Type A contingent asset (parent company guarantee) may also wish to note that the PPF is offering a series of interactive seminars in several locations during September and October to explore key areas around certification of such assets. These are targeted especially at trustees and advisers whose contingent asset has not been called in for review this year.

Comment

PPF levies remain high on most schemes’ agenda, and the foreword to the consultation document makes it clear that the PPF believes this is appropriate. In particular, the PPF is keen to encourage schemes to “continue to put in place risk reduction measures that can improve security for their members and reduce their levy bills”.

However, to achieve that ultimate goal, schemes will need to make sure they carefully check the precise details of their Experian scores, the PPF’s calculation methodology, and the fine-print of the PPF’s guidance on certification of any risk reduction measures adopted, and that they raise any concerns at the earliest opportunity. Schemes who are likely to be adversely affected by the issues raised for consultation (such as the FRS102 changes) may also wish to respond to the PPF by 22 October, when the consultation closes.

Despite the promised period of levy stability, therefore, it is unlikely that schemes will be able to relax their vigilance on PPF levy issues at any time in the foreseeable future.