PPF consults on 2016/17 pension protection levy

Introduction

On 21 September 2015, the PPF announced that the 2016/17 levy estimate will be set at £615 million and published the 2016/17 PPF levy consultation document. The consultation closes on 22 October 2015.

In this Alert

• Key points
• Recap of key changes for the 2015/16 levy year
• Proposed changes for 2016/17
• Last man standing schemes
• Looking ahead

Key points

• While the levy rules “are substantially the same as those published in 2015/16”, the PPF’s proposals are intended to continue to improve the rules’ practical elements and reduce burdens on schemes.
• The PPF has announced that schemes which are no longer reporting as last man standing (“LMS”) schemes will be contacted by the PPF later in 2015 or in the levy year 2016/17 and, where appropriate, re-invoiced.

Recap of key changes for the 2015/16 levy year

• The PPF introduced a new PPF specific model for measuring employer insolvency risk.
• An ABC will only receive credit in the PPF levy if it is valued on an insolvency basis and certified in accordance with the PPF’s requirements.
• The PPF further strengthened its processes for certifying Type A contingent assets (parent or group company guarantees). It now requires trustees to certify a fixed sum which they are “reasonably satisfied” the guarantor could pay in an insolvency scenario (referred to as the “Realisable Recovery”) and, except where the guarantor is the ultimate parent and files consolidated accounts, will adjust guarantor insolvency scores to reflect the value of the guarantee. (See our Alert for further details.)

Proposed changes for 2016/17

PPF-Specific Model

The PPF proposes several changes of a “limited and technical nature”, these include:

• requiring only immaterial mortgages to be re-certified. The benefit of other existing certificates will be carried over for 2016/17 scores, removing a recertification burden for several hundred employers. In these cases, the PPF itself will check that certifications are still valid.
• permitting companies that voluntarily provide Experian with full accounts (though they file abbreviated accounts with Companies House) to provide preceding years’ full accounts.

ABCs

In the consultation, the PPF comments that last year’s reports “appeared to have been carried out to a high standard”. As a result, for 2016/17, it has amended the ABC guidance to indicate the potential for a “light touch approach” to recertifying arrangements. For example, in most cases there will be no need to produce new legal advice and it will be possible to update the previous valuation.

Contingent assets

It appears from the PPF’s review of 2015/16 contingent asset certifications that the change to the Type A certification requirements (see above) has improved the quality of the underlying analysis performed or commissioned by trustees, although more improvement is apparently needed in some cases!

To provide trustees with further guidance on the approach they should take to assessing guarantors, the PPF has incorporated key elements from its guarantor strength factsheet into its draft contingent asset guidance. It hopes that this, together with a series of interactive seminars it is offering for trustees and advisers this autumn, will further clarify requirements.

Last man standing schemes

LMS schemes are multi-employer schemes which do not have an option or requirement to segregate assets when a participating employer leaves. Such schemes receive a levy reduction because potential access to the PPF does not arise until the last employer becomes insolvent.

Due to concerns that schemes were misreporting, all schemes that had identified themselves as LMS in their 2014/15 scheme return received an email from TPR requiring them to confirm that they had received legal advice regarding their structure. Schemes had until 29 May 2015 to respond (see our Alert for details).

While categorising a scheme as LMS or otherwise is not part of this consultation, the PPF notes that around half of the schemes contacted responded satisfactorily by the deadline. However, a number of schemes responded to indicate they had legal advice that they were not in fact LMS, although they have been reporting as such in previous years. Assuming that the structure of these schemes has not changed, this means they have been benefitting from a levy discount which they should not have received. The PPF plans to contact the schemes concerned and, unless there is a reason not to do so (such as a recent change of legal structure), it will re-invoice, in respect of past levy years, where it is economic to do so.

With regards to those schemes which chose not to take legal advice or that did not respond to the information request, the PPF has decided to wait until they have had another opportunity to report on the outcome of legal advice on the scheme’s structure before contacting them. Again, schemes will have the chance to indicate why they were correctly treated as LMS before any steps will be taken to re-invoice them.

Change to process

For 2016/17, schemes will be able to report the confirmation of legal advice in the Scheme Return. Only those schemes which indicate that they have received legal advice which supports their LMS status will receive the levy discount.

It is not necessary for schemes to take advice on their structure each year. Schemes will only need to take new advice if their structure has, or could have, changed.

Looking ahead

The PPF aims to avoid implementing changes to the levy framework, as far as possible, within each three year period or “triennium”. The current triennium runs until 2017/18 so, next year, the PPF intends to take the opportunity to review more significant elements of the risk-based levy calculation. For example:

• the performance of the PPF-specific model and whether any changes are needed to the way in which scores are calculated
• whether any action is needed to take account of the impact of the introduction of Financial Reporting Standard 102 (though typically the full-year effect will only be seen in 2018/19).

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