The PPF has published its draft levy determination for consultation, which sets out the basis on which the PPF intends to charge the PPF levy for the 2016/17 year. This includes the PPF’s expected total collection (the levy estimate), the levy scaling factor, the scheme based levy multiplier and associated rules and guidance. The consultation closed on 22 October 2015 and its conclusions are due to be published before the end of the year.

The PPF has stated that the underlying aim behind the levy framework is, as far as possible, to maintain stability in the way the levy is calculated over a three year period, whilst ensuring that the parameters used in the calculations remain appropriate (making any necessary adjustments accordingly). In the draft, the PPF has confirmed that the levy rules for 2016/17 will be very substantially the same as for 2015/16 and that the most significant changes will be to simplify the reporting requirements on schemes as opposed to altering the methodology for calculating the levy.

The consultation also says that:

  • For the 2015/16 levy, the PPF introduced a new PPF specific insolvency risk scoring methodology, developed with Experian, called the Pension Protection Score. That methodology has been kept under review but for the purposes of the 2016/17 levy any changes to it will only be of an essentially ‘limited and technical’ nature.
  • There will be the following changes to the levy rules in relation to the PPF-specific model:
    • In certain circumstances certain types of mortgages, which have been appropriately certified, can be excluded for the purposes of calculating an employer’s PPFinsolvency risk score. The PPF is proposing that of these only immaterial mortgages will need to be re-certified and that the benefit of other existing certificates will be carried over for the 2016/17 scores. This, according to the PPF, will remove the recertification burden for several hundred employers, with the PPF instead checking that certifications are still valid. There are also a number of other further points about refinance mortgages (e.g. that a re-statement/confirmation of an existing charge is not a new charge and can be certified for exclusion);
    • For accounts which are not published in sterling, the PPF is to change its convention on exchange rates to use the rate in force at the most recent accounts date, including for trend variables.
    • Where companies provide Experian with full accounts even though they only file abbreviated accounts with Companies House, they will be able to provide preceding years’ full accounts for trend variable calculations.

Other key areas:

  • Asset backed contributions (ABCs): The 2015/16 year saw a new approach to measuring the value of ABC structures (which is on an insolvency basis, requiring the valuer to assume a duty of care to the PPF in producing the valuation). The PPF’s view is that these valuations appear to have been carried out to a high standard. As a result, it has amended its guidance in light of its experience of such previous valuations and indicated the potential for a light touch approach to re-certifying arrangements previously certified.
  • Type A guarantees: last year also saw new requirements in relation to Type A guarantees, and in particular the requirement to have an identified sum, the ‘Realisable Recovery’, in relation to which trustees certify the guarantor’s ability to meet liabilities. The PPF has updated its guidance on submitting contingent assets to reflect supplementary material on how to consider the strength of the guarantor which the PPF issued in early February 2015. The PPF is also proposing to hold a series of interactive seminars with trustees and advisers to further clarify requirements.
  • Deadlines: to eliminate differing deadlines between itself and the Regulator, the standard time for the submission of scheme data (including hard copy contingent asset documentation) is to be shifted from 5pm to midnight at the end of 31 March 2016 (the same deadline which the Regulator adopts for submitting triennial s179 valuations). This is in recognition of the fact that schemes in the past have submitted updated s179 valuation information to the Regulator after the PPF 5pm deadline but before the Regulator’s midnight deadline. The shift in the PPF deadline is so that it can also take into account any updated s179 information submitted to the Regulator and to try to eliminate confusion for pension schemes in having differing deadlines on the same day.

Notably this change will not apply to the time for certification of deficit-reduction certificates and block transfers whose submission time will remain at 5pm on their respective dates.

‘Last Man Standing’ (‘LMS’) schemes

As referred to in the December 2014 edition of Pensions Priorities, schemes identifying themselves as ‘last man standing’ schemes in information submitted to the Regulator on Exchange (and so benefiting from a reduction in the PPF levy payable) were required to confirm, following an e-mail from the Regulator asking them to do so, by the end of May 2015 that they had received legal advice confirming their structure. The PPF has now said:

  • For 2016/17 the Regulator will include the confirmation of legal advice on the scheme return and only those schemes which indicate that they have this to support their LMSstatus will receive the reduction applicable to their PPF levy;
  • For schemes that had previously declared themselves as LMS schemes for the 2015/16 and previous years (and so had benefited from a discount to their PPF levy) but which have now confirmed that they did not have the appropriate structure, the PPF will re-invoice them to collect any arrears where there have been underpayments ‘where it is economic to do so’, unless there is a reason not to (such as a recent change of legal structure).
  • where schemes have not responded to the request for information about legal advice received in relation to their LMS status or chosen not to take such legal advice, the PPFwill give them another opportunity to report on this through their forthcoming scheme return. The PPF will contact those schemes which now confirm that they are not LMSschemes (though they said before that they were) or which do not have legal advice to support their status which meets the 2016/17 levy requirements. The PPF recognises that the legal advice requirement was only in place since 2015/16 and that previous to that schemes were only required to confirm whether or not they were a LMS scheme, and so it will take account of any legal advice received in deciding whether or not it needs to enquire further.

The PPF itself has said that it is aware that this issue affects some very large schemes, where the levy reductions (and so arrears now payable) have been and will be substantial, which could cause cash flow issues for such schemes, depending on how quickly the arrears need to be paid. Any schemes which have claimed LMS status and who have not received legal advice or reported to the Regulator that they have this should do so urgently to validate any previous reductions received in the PPF levy. If unable to do so, then these schemes should bear in mind the likelihood that previous levy reductions will have to be re-paid and the impact this may have on scheme cashflows and funding.

General conclusions

In general, it is prudent to think ahead in terms of preparing any relevant paperwork and taking any necessary advice in relation to the levy, particularly where a mechanism is to be used to obtain a PPF levy reduction – e.g. putting in place a contingent guarantee. There have been a number of recent PPF cases where the levy reduction has been refused due to inadequate paperwork so it is always worthwhile allowing sufficient time to make sure any such applications are correct. Indeed the draft determination highlights some of the areas which have caused issues in relation to applications for levy reductions in relation to ABCapplications, such as reports not adequately covering indemnity insurance and valuers omitting to confirm they had had sight of legal opinions on the structures etc. If you have any queries or questions on this please do not hesitate to ask any member of the Pensions Team who would be happy to assist.