Important deadlines for reducing a defined benefit scheme’s 2017/18 Pension Protection Fund (PPF) levy are fast approaching.

Although the PPF has yet to publish its final determination for the 2017/18 levy year, we are of the view that trustees and employers need to take action as soon as possible as the PPF has indicated that the final determination will not be materially different from the draft currently available on its website.

PPF consults on schemes without substantive sponsor

In addition, trustees and sponsors should be aware that the PPF commenced consultation (see consultation document) on 20 February 2017 inviting comments solely on new rules for schemes without a substantive sponsor. The deadline for comments is 5pm on 6 March 2017 and the PPF has indicated that it will publish finalised rules by 31 March 2017.

Action points for trustees and employers - 2017/18 levy

There is still time for trustees and employers to take action to reduce their scheme’s 2017/18 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. 

Deadlines

The relevant deadlines for taking action to minimise the 2017/18 PPF levy, including putting in place contingent assets, are as follows:

  • Deadline for submission of responses regarding new rules for schemes without substantive sponsor: 5pm on 6 March 2017
  • Deadline for submission of scheme data via Exchange (including section 179 valuations) for use in levy calculations: Midnight on 31 March 2017
  • Deadline for putting in place contingent assets and submitting certificates: Midnight on 31 March 2017 (see further below)
  • Deadline for certifying asset backed contributions: Midnight on 31 March 2017
  • Deadline for re-certifying existing contingent assets: Midnight on 31 March 2017 (see further below)
  • Deadline for certifying “immaterial” mortgages with Experian: Midnight on 31 March 2017
  • Deadline for certifying deficit-reduction contributions made on or before 31 March 2017: 5pm on 28 April 2017
  • Deadline for final certification of full block transfers that have taken place up to and including 31 March 2017: 5pm on 30 June 2017
  • Insolvency risk to be measured using the monthly Experian scores on the last working day of the month between 30 April 2016 and 31 March 2017.

PPF compliant guarantees

Although recertification of an existing PPF compliant guarantee is a relatively simple process, trustees do now 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 have made 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 (in particular click here). 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.