In December 2013, the PPF published its final determination for the 2014/15 levy and confirmed that it expects to collect £695m. The determination also confirms that the last date for certifying contingent assets for the 2014/15 levy year is 5pm Monday 31 March 2014.
The 2014/15 estimate reflects a 10% rise on the equivalent estimate for 2013/14. The increase has been attributed by the PPF to an unexpected decline in five-year smoothing funding positions at 31 March 2014. However the PPF has also noted that the current economic outlook suggests that it may collect levies below this level.
One method available to pension schemes to reduce their PPF levy is to certify a contingent asset. Such assets are granted in favour of the pension scheme but are only available to it if one or more specified events occur. In the context of an occupational pension scheme, the most likely specified events are the employer becoming insolvent, or if the scheme fails to achieve a specified funding level. However contingent assets are considered when the PPF levy is calculated.
This guidance is updated each year and there have been few changes to either the levy rules or the contingent asset requirements for 2014/15. The most significant change is in relation to recertification of contingent assets. The PPF has relaxed the rules on recertification such that trustees will be able to recertify a contingent asset if it has been certified with the PPF in the last five years, provided the contingent asset itself has not changed in that period.
The PPF had also consulted on the wording of the certification given by Trustees in relation to type A guarantees. The statement that “the trustees have no reason to believe…” was thought to be problematic where the trustees know of a reason, even if it wasn’t substantial, why the guarantor could not meet its full commitment under the contingent asset as certified. While there has been no change to this wording, the PPF has confirmed that trustees can give the certification even where they are aware of an isolated negative factor regarding the guarantor’s financial position where this is clearly outweighed by a number of positive factors. The PPF expects to make changes in the 2015/16 levy year when the levy rules will be looked at in further detail.
If you are preparing to certify or recertify a contingent asset or plan to enter in to a new contingent asset for the levy year 2013/14 we can assist in reviewing the guarantor strength, completing the necessary documentation and the trustees’ certificate.
The deadline for certification to ensure that an existing contingent asset or a new contingent asset is recognised by the PPF for the 2013/14 levy year is 5pm on 31 March 2014 via the Pension Regulator’s online Exchange service.