The PPF has published a consultation paper proposing changes to its levy rules for the next 3 year period (or triennium) 2018/19 to 2020/21.

Included with the detail of the consultation are proposals which, if implemented, could affect the use and certification of PPF form parent company guarantees used to achieve a reduction in a pension scheme’s levy for PPF purposes.

The key changes proposed include:

  • a requirement that trustees take professional advice and obtain a 'guarantor strength report' prior to the guarantee being certified, where the amount certified as the realisable recovery under the guarantee is £100m or more;
  • guidance setting out the key elements of what should be included in the adviser’s report, with the adviser being required to provide a duty of care to the PPF, covering the levy reduction that would result from recognition of the contingent asset;
  • a review of the existing standard form PPF guarantee; and
  • a requirement that existing guarantees should be re-executed in the new form (if this is brought in the PPF) where certified in the future.

Comment

The PPF has concerns that, in some cases where a PPF Guarantee is certified, the guarantors' position appears to only seriously have been considered once selected for review by the PPF's assessment process (rather than prior to certification), with a "significant number" of guarantees being rejected on the basis of there being insufficient evidence of the guarantor's ability to meet the certified amount.

By introducing a requirement for professional advice to be taken by the trustees prior to certification in the larger cases, as proposed, would reduce the PPF's workload in policing PPF parent company guarantees used for levy reduction purposes, but would, at the same time, increase costs for schemes.

Other than the desire to ensure that the documentation is as robust as possible and remains fit for purpose, it is not completely clear from the Consultation why the PPF is conducting a review of its standard form guarantee, although it does give the example of looking to clarify the wording in some of the guarantee clauses where there has been some legal debate over their meaning. The existing PPF form guarantee must be accepted in its entirety and is non-negotiable. It is known to be "trustee friendly" and while many employers are happy to accept its terms in order to achieve PPF levy reductions, some are less inclined. The PPF indicates in the Consultation that it is expecting its review to result in an updated standard form PPF Guarantee, and it remains to be seen whether this will change the trustee/employer balance under it.

One thing the PPF does state is that if a new form of guarantee is produced, it expects trustees and guarantors to adopt a new guarantee in the new format if they wish to continue certifying the guarantee going forward. This is a departure from existing practice which involves guarantees being certified on the basis of the PPF standard form that was "live" at the point of the guarantee being entered into.

The consultation runs until 15 May 2017 and is accessible here.