The PPF has published revised guidance for schemes wishing to submit a Type A contingent asset (group/parent company guarantee) in order to reduce their 2013/2014 levy payment. The changes concern, in particular, the role of the trustee in assessing the strength of the guarantor compared with the funding position of the scheme.

The wording of the certificate is the same as last year:

“The trustees have no reason to believe that each certified guarantor, as at the date of the certificate, could not meet its full commitment under the contingent asset as certified.”

The key change is that when valuing the guarantor the trustees must recognise that the guarantee would only be likely to be called on in the event of an insolvency of the sponsoring employer i.e. the guarantor must be valued on the assumption that the employer is insolvent. The guidance stipulates that the trustees’ consideration of the guarantor’s position must take account of “the reasonably foreseeable impact of the insolvency of the employer whose liabilities are being guaranteed, assuming that were to occur in the near future”.

Trustees must satisfy themselves that they have no reason to believe the guarantor would not be able to pay the sum guaranteed if called upon to do so. The PPF may require trustees to provide evidence of this (such as a report from a financial expert). In order for the PPF to reduce the levy, a contingent asset must (in its view) reduce the risk of compensation being payable in the event of an insolvency event and that reduction in risk should be reasonably consistent with the levy reduction secured.

Past difficulties have arisen because trustees provide their certificate based on the scheme’s funding as at the date of certification, but the PPF bases its consideration on the scheme’s funding subject to “stressing and smoothing”. This means that some Type A assets have been rejected. The guidance suggests that to avoid this problem in future, trustees could either certify a fixed sum guarantee based on their assessment of the worth of the guarantor, or use the PPF’s methods for valuing scheme funding.

Contingent asset certificates relating to the 2013/2014 levy (including recertification of existing contingent assets) must be received by the PPF by 5 p.m. on 28 March 2013.