This update looks at the Pension Protection Fund Levy determination for the PPF Levy Year 1 April 2017 to 31 March 2018.
In particular, we look at whether there are any action points which pension scheme trustees should be taking as a consequence of the levy determination and the associated guidance.
The Determination is not yet in final form and will remain in principle for the time being. This is because the PPF is considering whether it needs to make any changes to reflect scenarios where eligible schemes no longer have a substantive employer after a restructuring. The final determination will be published by 31 March 2017 at the latest. The PPF has stated that it is their firm intention that there will be no other changes other than addition of material relating to the substantive employer point.
The PPF estimate for the 2017/18 levy year is £615m, which is the same as last year. Given that we are in the final year of the current levy triennium, relatively little change in the process for this year has been made. The PPF will shortly begin consulting on the next levy triennium.
One of the main changes to this year is to include the ability for scheme sponsors/guarantors to notify Experian when a move to FRS102 would otherwise cause artificial move in a company's Experian rating. Sponsors or guarantors impacted by changes to data for fixed variables will be able to certify the impact of the accounting standards change. Originally this was only going to be an option available to sponsors and guarantors on the large and complex and the Not for Profit Scorecards but the PPF has extended this certificate to all sponsors/guarantors.
The PPF also considered representations on whether to use the FCA Mutual Public Register for Mortgage Data. Specific issues have been raised by Mutuals in respect of mortgage scores. Mutuals do not file reports and accounts to Companies House meaning that it is not possible for Experian to determine information relating to mortgages. Instead the PPF assumes a neutral score regarding mortgages and charges rather than a score of zero.
The PPF concluded for this year that the FCA Register is not sufficiently comprehensive and there is not a case for a different approach specifically for Mutuals. The PPF's view is that they have attempted to take a proportionate approach by avoiding the assumption of the worst possible score but to use a neutral score. The PPF indicated that aspects of the model would be expected to change for the first triennium but for this levy year, the PPF will continue to use a neutral score instead. The PPF has indicated that the large and complex, independent score and not for profit scorecards are all being rebuilt for the third triennium and the PPF noted that the current Mutual PPF population is significantly concentrated on these scorecards. The PPF says that early indications are that Mortgages are not likely to be significant to the overall score in the rebuilt scorecards. As such where charges are not registered with one of the Registries named in the PPF Levy Determination the PPF's current approach of using neutral mortgage scores will continue.
The procedure for certifying contingent assets this year is broadly the same as last year. Therefore, trustees will need to ensure that existing contingent assets are recertified via Exchange by Friday 31st March. For the levy year, 2015-16, the PPF introduced a requirement that when certifying a type A contingent asset, trustees must provide a statement as to the amount which the trustees are reasonably satisfied that the guarantor could meet (or the value of any cap specified in the guarantee, if this is lower). This is referred to in the PPF guidance as the 'realisable recovery'. Trustees should not assume that the realisable recovery amount that was certified last year will be the same this year.
For schemes who are recertifying an asset backed contribution arrangement ('ABC'), trustees will need to obtain a valuation for the purposes of the recertification. This valuation may either be an updated version of the existing valuation or a full valuation. Where an updated valuation is obtained, the valuer must: confirm that the previous valuation of the ABC asset was taken into account, opine on the current value of the ABC asset and accept a duty of care to the PPF in providing the opinion.
If the underlying legal positon remains the same since the ABC was last certified, then the ABC valuer can continue to rely on previously supplied legal advice. The trustees' legal advisers will need to confirm that their previous advice remains current and that no changes have been made to the terms of the ABC which may materially affect the basis on which the advice was given.
The PPF continues to require trustees, in respect of any ABC asset which consists of or includes real estate, to obtain a certificate of title in respect of the ABC assets. This requirement also applies where the ABC asset is a loan note issued by another group company. This has presented practical obstacles for many companies where the assets involved include numerous properties and therefore render the cost of obtaining certificates of title for each property prohibitive.
The PPF suggested in its consultation document that it is keeping under review the use of the ABC structure where loan notes are involved and the PPF has suggested that they may bring the levy recognition more into line with that of Type A contingent assets (guarantees) in the future. We will continue to monitor this position when the levy triennium consultation is issued.
For trustees certifying an ABC for the first time or who do not wish to go through the full process for getting an ABC recognised but instead wish to get a particular value taken into account, the process is largely the same as set out in our note from January 2015. A copy of the update can be found here but please bear in mind that the deadlines should refer to 2016.