The Pension Protection Fund (PPF) confirmed that it would begin issuing invoices for the 2015/2016 levy year in September 2015. Therefore, schemes which have not already received their invoice should expect it to arrive over the coming weeks.
This year is the first year that the PPF has calculated levies using its PPF-specific insolvency risk-based model. The new PPF-specific model was created with Experian and was introduced as part of the levy framework for the PPF’s second ‘triennium’, running from 2015/16 to 2017/18. The use of the PPF-specific model is a significant change from previous years and this will be reflected in 2015/16 levy invoices. It is anticipated that many schemes will see a reduction in their levy but the PPF has identified that some schemes will see material increases from previous levy years with some increases expected to be in excess of £200,000.
Anyone wishing to challenge their scheme levy must do so within 28 days of the date of the invoice. While it is too late for schemes to provide additional data for the purposes of calculating the 2015/16 levy, trustees and employers are encouraged to review their levy invoice immediately on receipt to ensure that it has been correctly calculated in accordance with the rules and that the correct score card and employer data have been used for the purposes of assessing overall insolvency risk.
Looking to the future: the 2016/17 levy year
On 21 September 2015, the PPF announced its levy estimate for the 2016/17 levy year (the total it is aiming to collect) to be £615 million. This estimate is lower than the previous year’s estimate of £635m. The reduction in levy estimate is due to improvements in overall employer insolvency risk scores balanced against deterioration in scheme funding.
The PPF has also published its consultation in respect of the 2016/17 levy year. In comparison to the 2015/16 levy year, there are no material changes but there are some proposed variations such as changes to certification requirements and rules regarding mortgages, the current convention on exchange rates and the ability to provide Experian with full accounts where abbreviated accounts are filed with Companies House.
The PPF also indicates that it is working with Experian to consider whether it would be appropriate to make changes in future levy years to take account of the introduction of the new financial reporting standard FRS102.
The consultation is an opportunity for trustees and employers to have their say regarding how the PPF levy is calculated in future. It closes on 22 October 2015.
Last man standing schemes
The 2015/16 levy year was the first year in which any scheme reporting itself as a “last man standing” (LMS) scheme was required to certify that legal advice had been taken which confirmed the scheme’s status.
The PPF found that a number of schemes which had reported as LMS in previous levy years (and benefited from a reduction in the levy) reported that the scheme was not LMS for the 2015/16 levy year. The PPF has indicated its intention to contact these schemes with a view to re-issuing invoices to recoup the discount where schemes erroneously reported themselves as LMS in earlier levy years, if economical to do so.
Incorrect reporting of LMS status could have financial implications: the reduction is applied to the risk-based element of the levy and in earlier levy years this amounted to a 10% reduction.
The PPF is also considering what approach to take regarding schemes which indicated that they did not have legal advice to support their reported status or did not respond to the PPF’s request for further information.