The Pension Protection Fund has published its consultation (Consultation) on the Pension Protection Levy, proposing to increase the total levy it will charge schemes for the 2014/15 year to £695k. This represents an increase of 10% on the total levy collected by the PPF in 2013/2014. The figure is an estimate and the final amount that the PPF invoices could change. For instance, the PPF has stated that if gilt yields continue to go up, it may need to charge less than its £695k estimate.
Changes to the certification requirements of a contingent asset
The PPF is also proposing to change the current certification requirements for contingent assets. Currently, trustees have to certify that they "have no reason to believe…" that the guarantor(s) cannot meet their commitments under the contingent asset(s). The PPF is proposing to change the wording to:
“The trustees, having made reasonable enquiry into the financial position of each certified guarantor, are reasonably satisfied that each certified guarantor, as at the date of the certificate, could meet its full commitment under the contingent asset as certified, having taken account of the likely impact of the immediate insolvency of all of the relevant employers.”
The change is being proposed following concerns that the certification wording as it stands makes it difficult for trustees to certify a contingent asset when faced with a situation where a single negative factor is known by the trustees in relation to the guarantor but which is outweighed by various positive factors.
The PPF has emphasised that the change will not affect how trustees are expected to value the guaranteed amount or assess the guarantor as the PPF's Contingent Asset guidance 2013/14 makes it clear that trustees need to be "comfortable (i.e. rather than certain) that the guarantor could meet its full commitment under the guarantee if called upon to do so".
The PPF is also proposing to include in its Levy Determination for 2014/15 (draft of which is issued with the Consultation) the following:
the need for trustees to investigate the guarantor's financial position before certifying a contingent asset; and
the need for trustees to make "reasonable enquiries" to consider the impact of the employer's insolvency on the guarantor's ability to meet its certified commitment.
The PPF's current Contingent Asset guidance already recommends that trustees do this and the purpose of introducing these requirements in the Levy Determination is simply to ensure that the determination mirrors the points contained in the guidance.
Contingent Asset guidance
A revised draft of the Contingent Asset guidance has also been issued with the Consultation. Any changes to the guidance from the previous year are intended primarily to remove repetition and clarify points already made.
Change to recertification requirements
The PPF is also proposing to change its requirements in relation to recertification of a contingent asset. At the moment, it is only possible to recertify a contingent asset if it was certified in the immediately preceding levy year. This has led to a practice of trustees recertifying a contingent asset even where it makes no difference to a scheme's levy so as to avoid having to undertake the more onerous certification processes and submission as a new contingent asset in a later year.
The PPF is therefore proposing to allow schemes to recertify where they have certified a contingent asset in any previous levy year in the five levy years previously and the contingent asset has been in place throughout the intervening period.
The Consultation will close on 24 October 2013. The PPF's finalised Levy Determination is expected in December this year.
The change to the certification and recertification requirements of contingent assets will be welcomed by scheme trustees.
The Consultation also points out that the total levy that the PPF needs to charge for 2014/2015 may need changing once the DWP finalises its proposals in relation to changes to the definition of "money purchase benefits" under the Pension Schemes Act 1993. The change would mean that certain benefits that were previously characterised as money purchase would now be characterised as defined benefits. This could then give rise to an increase in defined benefit liabilities for such schemes and an increase in the total levy that the PPF needs to collect. The PPF has said that until the DWP issues draft regulations in relation to the changes to the definition of money purchase benefits, it cannot take a firm view of the impact on the levy.