Long service changes

The Government has finally announced a consultation in relation to changes to PPF compensation for long service members, which was first proposed back in 2013 (see our article on this in the August 2013 edition of Pensions Priorities). Currently, PPF compensation is capped at age 65 at £33,678.38 per year for members who have not reached their normal pension age when their employer becomes insolvent. When the provisions already enshrined in the Pensions Act 2014 come into force they will increase the standard compensation cap by 3% of the cap for every full year of pensionable service above 20 years subject to a new maximum of double the standard cap. The consultation concerns changes needed to secondary legislation to ensure that the increased compensation cap operates as intended in all situations. We understand, from a Ministerial announcement that the ‘in force’ date is expected to be 6 April 2017.

The PPF is currently in surplus (according to its 2015/16 accounts) but the likely increase in cost for the PPF of the new long service cap may still eventually be passed on through an increase in the PPF levy, which has to be paid by all DB pension schemes (and ultimately employers).

The 2017/18 PPF levy

The PPF has now also announced a consultation on its 2017/18 levy. In general, this includes:

  • The PPF has confirmed that there will be no substantial changes to the methodology used to calculate the levy (in line with its aim of keeping the levy calculation stable for a triennium (three year period)).
  • there is a proposed new mechanism for notifying Experian, the PPF’s insolvency risk services partner, if the move to the new UK accounting standard FRS102 would otherwise cause an artificial movement in rating.
  • There are also some proposed changes:
    • to address where ultimate parent companies prepare small companies accounts on a consolidated basis (which is currently said to affect only around 20 schemes) and how they are assessed for insolvency risk purposes;

    • which generally affect either the time when data is used in Experian calculations or clarifications of existing rules and guidance.

The consultation closes on 31 October 2016 and the PPF intends to finalise the rules and publish the final levy determination in December. Employers in relation to schemes that provide DB benefits and are subject to the PPF levy should remain aware of developments and how they may affect the levy payable when the rules are finalised and also of key deadlines in the levy process (for example, for the submission of data and documents to the PPF for the certification of contingent assets will be midnight on 31 March 2017).