PPF levy determination for 2015/16

Introduction

On 18 December 2014, the PPF published its levy determination for 2015/16 and associated documents.

The PPF’s intention is to retain these new levy rules for a three-year period but it will keep the performance of the new PPF specific model for assessing insolvency risk under close review.

Key points

From the levy year 2015/16, to receive credit in the PPF levy for an ABC arrangement, the ABC must be valued and certified in accordance with the PPF’s requirements.
Schemes identifying themselves as “last man standing schemes” (LMS Schemes) on Exchange will be asked by TPR to confirm that they have taken legal advice which supports that conclusion by 29 May 2015.
Provided they have been appropriately certified, the PPF will exclude certain immaterial mortgages from the mortgage age variable calculation on an employer’s insolvency risk scorecard.
The final publication is largely unchanged from the proposed framework announced in October 2014 (see our Alert for details). However, there have been a few minor modifications following the consultation.

Key changes for the 2015/16 levy year

New PPF specific model

The PPF has introduced a new PPF specific model for measuring employer insolvency risk. Schemes are encouraged to ensure they understand their new scores and engage with Experian if needed.

ABCs

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. Full details of these processes are set out in the ABC guidance.

Among other matters, trustees must certify that, having regard to appropriate legal advice, the trustees believe that the ABC arrangement is legally binding, valid and enforceable, and that the ABC investment does not breach the employer-related investment restrictions in s40 of the Pensions Act 1995.

LMS 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.

Owing to concerns of misreporting, all schemes that have been classified as LMS on their scheme returns will receive an email from TPR, after 31 March 2015, requiring them to confirm that they have received legal advice regarding their structure. Schemes will have until 29 May 2015 to respond (this date has been changed from 31 May so that it is the last working day of the month).

Contingent assets

The PPF has further strengthened its processes for certifying Type A contingent assets so that –

trustees will be required to certify a fixed sum which they are “reasonably satisfied” the guarantor could pay in an insolvency scenario (referred to as the “Realisable Recovery”)
except where the guarantor is the ultimate parent and files consolidated accounts, guarantor insolvency scores will be adjusted to reflect the value of the guarantee.

In each levy year, a number of Type A contingent assets will be selected by the PPF for a detailed review of the guarantor’s financial resources. Schemes will therefore need to ensure they have appropriately evidenced and documented their assessment of the guarantor’s strength.

Key changes following consultation

Mortgages

One key change relates to the treatment of mortgages under the PPF specific model for assessing insolvency risk.

The model includes a “mortgage age variable” which measures the age of the newest, unsatisfied, secured charge registered. It is a feature of most of the insolvency risk scorecards and can have a significant impact on an employer’s insolvency risk score.

Following the latest consultation, the PPF has decided to disregard certain types of mortgage on the basis that they are not necessarily predictive of insolvency risk. These include a mortgage refinancing which meets certain conditions and “immaterial” mortgages (the immateriality test will be based on 0.5% of the chargor’s total assets, assessed on the basis of the aggregate value of all mortgages certified). In addition, a group which has an investment grade credit rating and satisfies certain other criteria will have all mortgages disregarded.

However, employers must certify any mortgages they wish to have excluded. The PPF’s “Guidance relating to Mortgage Exclusions for Levy purposes” sets out its specific requirements.

Surety bonds

The PPF is also extending the scope of Type C(ii) Contingent Assets (letters of credit and bank guarantees with a reducing balance) to allow surety bonds to be recognised.

Key dates

Item	Deadline
Monthly Experian scores	Between 31 October 2014 – 31 March 2015
Submission of data to Experian to impact monthly scores	One calendar month prior to the Score Measurement Date
Submit scheme returns on Exchange	By 5pm on 31 March 2015
Contingent asset certificates to be submitted on Exchange with hard copies, as necessary, to the PPF	By 5pm on 31 March 2015
ABC Certificate to be submitted to the PPF	By 5pm on 31 March 2015
Mortgage Exclusion (“Officers”) Certificates and supporting evidence to Experian	By 5pm on 31 March 2015
Deficit Reduction Contribution Certificates to be submitted on Exchange	By 5pm on 30 April 2015
Confirmation of legal advice held on LMS status to be submitted to the PPF	By 29 May 2015
Certification of full block transfers to be completed on Exchange or submitted to the PPF	By 5pm on 30 June 2015
Invoicing starts	Autumn 2015

Action

Schemes should start preparing for the 2015/16 levy year as soon as possible, bearing the above changes in mind. In particular, schemes with Type A contingent assets or ABCs, and/or those that are reporting as LMS Schemes, are likely to need to take additional steps this year and should therefore get in touch with their usual Sackers’ contact. Given the various deadlines highlighted above, an early start to this process is always advisable!