The PPF has published its draft levy estimate and related draft documentation for 2016/17. The documentation does not indicate any major changes in policy. However, some points worth noting are the PPF's intention to re-invoice schemes which have wrongly identified themselves as "last man standing" (LMS), the PPF's approach to asset-backed contributions which have already been certified, the PPF's approach to "excluded mortgages" which have already been certified and additional detail on the PPF's approach to guarantees that are certified as contingent assets.
Last Man Standing Schemes
Broadly, a scheme will be a LMS scheme (and so entitled to a more favourable levy calculation) if its rules do not contain any requirement or discretion for the trustees to segregate assets on an employer ceasing to participate in the scheme. Following concerns that some schemes had been wrongly describing themselves as LMS, the PPF last year introduced a requirement that in order for a scheme to be treated as LMS, the trustees had to confirm that they had received legal advice that the scheme met the definition. This has resulted in some schemes receiving legal advice that they arenot LMS in cases where the scheme has previously described itself as LMS. The PPF says that it will contact such schemes and "where it is economic to do so" will re-invoice them for previous levy years in which they mis-described themselves as LMS.
In the case of schemes which have previously reported themselves as LMS but have not taken legal advice/not responded to a request for information on this point, the PPF will wait to see what schemes report on their forthcoming scheme return. Subsequently, the PPF intends to contact schemes which describe themselves as not LMS having previously described themselves as LMS, and schemes which describe themselves as LMS but do not have legal advice to confirm that. Schemes may be re-invoiced if it emerges that they have wrongly had their levy calculated on the LMS basis in previous years.
Last year the PPF introduced a policy that it would attribute no value to an asset-backed contribution arrangement (ABC) unless a valuation meeting detailed requirements had been submitted to it by the reporting deadline of 31 March 2015. This year's draft guidance sets out the procedure for re-certifying an ABC that was recognised for the previous levy year. A valuation will be necessary for the purpose of the re-certification, but at the valuer's discretion this may be an updated version of the previous valuation.
Last year a new methodology was introduced for assessing an employer's insolvency risk. Under this methodology a recent unsatisfied mortgage could adversely affect an employer's risk rating. Certain types of mortgage were excluded as less relevant, but in some cases it was necessary for the employer to submit a certificate to Experian, the PPF's insolvency risk score provider, in order for the exclusion to apply. As regards mortgages that have already been certified, the PPF is proposing that only "immaterial mortgages" will need to be re-certified. The benefit of other mortgage certificates will be carried over for 2016/17 scores. The PPF is also broadening some of the criteria for a mortgage to qualify for exclusion as a "refinance mortgage".
Type A Contingent Assets
The PPF's draft Contingent Assets guidance indicates that in the case of "Type A" contingent assets (guarantees) the PPF will continue to focus on whether the guarantor would actually be able to meet the amount which the Trustees have certified as the "Realisable Recovery" in the event of the insolvency of all employers (other than the guarantor itself). Some additional detail relating to this issue has been added to the draft guidance. Some specific points are:
- if the guarantor is itself a scheme employer and would be likely to cease trading as a result of paying the guaranteed amount, the trustees should consider whether it could pay the guaranteed amount alongside any debt due under section 75 of the Pensions Act 1995;
- where the guarantor is part of a group, trustees should not rely on consolidated accounts to assess its position, but must also consider the guarantor's resources on an individual basis; and
- the higher the "Realisable Recovery" figure certified, the higher the threshold will be for providing satisfactory evidence that the guarantor could meet the sum certified.