PPF levy deadlines are approaching

Important deadlines for reducing a defined benefit scheme’s 2016/17 Pension Protection Fund (PPF) levy are fast approaching.

There may still be time for trustees and employers to take action to reduce their scheme’s 2016/17 PPF levy. However, they will need to act very quickly, especially if they wish to put in place contingent assets for the first time or recertify existing contingent assets. Trustees and employers who wish to do this, but who have not yet started the process, should speak to their usual Eversheds adviser as soon as possible for advice. In particular, trustees and employers should note that many of the deadlines fall within Easter week this year, making the practicalities of obtaining signatures and holding meetings potentially more difficult.

Deadlines

The key deadlines for taking action to minimise the 2016/17 PPF levy, including putting in place contingent assets, are as follows:

  • Submission of scheme data via Exchange (including section 179 valuations) for use in levy calculations: midnight on 31 March 2016
  • Putting in place contingent assets and submitting certificates: midnight on 31 March 2016 (see further below)
  • Certifying asset backed contributions: midnight on 31 March 2016
  • Re-certifying existing contingent assets and asset backed contributions: midnight on 31 March 2016 (see further below)
  • Certifying “immaterial” mortgages with Experian: midnight on 31 March 2016
  • Certifying deficit-reduction contributions: 5pm on 29 April 2016
  • Final certification of full block transfers that have taken place up to and including 31 March 2016: 5pm on 30 June 2016
  • Insolvency risk to be measured using the monthly Experian scores on the last working day of the month between 30 April 2015 and 31 March 2016.

PPF compliant guarantees

Although recertification of an existing PPF compliant guarantee is a relatively simple process, some of the PPF’s requirements in relation to new Type A guarantees also apply to recertification. Trustees need to specify an amount that they are reasonably satisfied that the guarantor(s) could meet (called the Realisable Recovery by the PPF).

As part of this requirement, and before certification or recertification, trustees will now need to havemade reasonable enquiry into the financial position of the guarantor(s) and will have had to consider the likely impact of the immediate insolvency of the employers to the scheme on this financial position. The Realisable Recovery specified can be no higher than any financial cap within the guarantee itself. The PPF has issued guidance in respect of this requirement. Our view is that it will be necessary for trustees to consider the position carefully and, at the very least, keep an audit trail of decisions made and information reviewed. They may also need to take appropriate covenant advice.

Asset backed contributions (ABCs)

New guidance has been issued in respect of ABCs which sets out the PPF’s requirements to recertify them, last year being the first where certification of ABCs was required to achieve any levy savings. The good news is that the PPF does not require trustees to obtain a new legal opinion (but merely to get confirmation that there have been no relevant changes which would alter that opinion) but trustees will be required to obtain a fresh valuation of the ABC in order to certify the lower of its fair value and its stressed insolvency value.