Like Topsy the PPF's monetary requirements seem to grow each year. This results in increased PPF levies for defined benefit schemes and their sponsoring employers. These additional costs, which can be very significant, underline the need for accuracy in submitting PPF data - errors can rarely be corrected.
Framework for PPF levy
Under section 175 Pensions Act 2004, the PPF Board has to "determine" the calculation basis for each Levy Year (1 April to 31 March). The relevant data e.g. number of scheme members and their allocation between employers in a multi-employer scheme, must be entered in the scheme's Annual Return. Nowadays the Annual Return is electronically entered on the Pensions Regulator's "Exchange" system.
PPF levy cycle
This is broadly as follows, using the current period as an example:
- December 2010: PPF "Determination" published for PPF Levy Year 2011/2012 with detailed Rules and Appendices.
- By 5:00pm on March 31 2011: Annual Return to have been filed, including any certification of contingent assets such as guarantees, charges or escrow accounts.
- April 2011 to September 2011: PPF calculates levies.
- October 2011: Levy invoices issued.
What can go wrong?
Answer, quite a lot. A relatively common error in Annual Returns is incorrect allocation of members amongst scheme participating employers. For instance, the sale or acquisition of an employer or an internal group reorganisation may be overlooked. This can result in employees being allocated to Employer X (weak covenant) whereas they should be allocated to Employer Y (strong covenant). The mistake leads to an increase in the scheme's PPF risk based levy.
What if incorrect information is filed?
The PPF appeals system is broadly as follows (Section 206, Pensions Act 2004 - "reviewable matters"):
First stage: PPF review committee
Second stage: PPF Reconsideration Committee
Third stage: PPF Ombudsman
Fourth stage: on point of law, to the High Court
In December 2009 the PPF published guidance on how, broadly speaking, the PPF will exercise their discretion in considering data errors. For years immediately following the introduction of the PPF levy in 2006/07, the PPF took a relatively relaxed attitude and often permitted corrections. Nowadays the reverse is true and the PPF seldom allows corrections. Thus the 'norm' now in the above example would be for the PPF to insist that the members concerned remain allocated to weak employer X, hence increasing the PPF risk based levy compared to the levy had the members been allocated to strong employer Y. Thus those entering scheme data in 'Exchange' need to take particular care. This applies not only to those punching in the data, but also to those who supply information. Suppliers could include employer representatives (e.g. company secretary/HR director), trustees, and their respective advisers including pension administrators and benefit consultants.
Out of over twelve appeals to the PPF Ombudsman in the last few years, none have succeeded - a salutary reminder about the need for correct data entry. If there is uncertainty as to which members 'belong' to which employer, legal advice should always be taken.