PPF’s levy determination for 2014/15

Introduction

The PPF’s levy determination for 2014/15 was published in December 2013.

In this Alert:

Key points
Contingent Assets
Re-characterisation of money purchase benefits
Key dates
Action
Looking further ahead

Key points

From the levy year 2014/15, a simplified recertification procedure may be used for contingent assets where certification / recertification occurred not more than five years previously and the underlying agreement remains in place.
The PPF has confirmed that deficit reduction contributions must be in cash.
A proposed change to the wording of the trustees’ guarantor strength certification will not be introduced until the levy year 2015/16.
D&B is introducing a new scoring methodology in early 2014 but there will be no corresponding change to the levy rules.
The 2014/15 determination does not provide for levies to be recalculated to address liabilities which arise as a result of the change in the definition of money purchase benefits (which will come into force on 6 April 2014).

Contingent Assets

Recertification

Currently, if a contingent asset was not certified / recertified for the previous PPF levy year it must be certified as if it were a new contingent asset. Following consultation, for the levy year 2014/15 the PPF will allow an asset to be recertified whether or not it was certified / recertified in the previous levy year, provided that:

certification or recertification has occurred not more than five years previously; and
the trustees can confirm that the agreement remained in place during the years the asset was not certified for levy purposes.

Certification of guarantor strength

Since the levy year 2012/13, trustees of schemes with Type A contingent assets (parent or group company guarantees) must certify that they “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 “Certification”).

The PPF consulted on a change to the wording of the Certification but have decided not to implement this until the levy year 2015/16. However, the contingent asset guidance has been updated to:

re-emphasise that trustees must appropriately consider the ability of the guarantor to meet its commitment where the employers whose liabilities it is covering have become insolvent; and
confirm that the Certification “should be read as allowing isolated negative information to be outweighed by a number of positive factors” (i.e. trustees need to be comfortable rather than certain that the guarantor could meet its full commitment under the guarantee if called upon to do so).

Re-characterisation of money purchase benefits

The PPF consulted on whether it should include a rule in this year’s Determination that would allow it to recalculate levy invoices for 2014/15 for schemes affected by the change in the definition of “money purchase benefits” (which will come into force on 6 April 2014) but has decided not to do so. Under current Government plans, benefits which are reclassified as DB following the change in definition of money purchase benefits will qualify for PPF compensation from 1 April 2015. Perhaps unsurprisingly, therefore, the PPF has concluded that it will “set out [its] thinking further” when the legislative position on this issue is settled. (For further details on the reclassification of money purchase benefits please see our Alert.)

Key dates

Scheme returns must be submitted to Exchange by 5pm on 31 March 2014
Contingent assets must be certified / recertified by 5pm on 31 March 2014
Deficit-reduction contributions must be certified by 5pm on 30 April 2014
Full block transfers must be certified by 5pm on 30 June 2014
Invoicing will start in autumn 2014
Monthly D&B Failure Scores will be measured between 30 April 2013 and 31 March 2014
The reference period over which funding is smoothed is the five year period to 31 March 2014

Action

Employers and trustees who have or are intending to use contingent assets should get in touch with their usual Sackers’ contact. An early start to this process is always advisable!

Looking further ahead

The 2014/15 levy is the last to be set under the first three year period of the new levy framework implemented in 2012/13.

We already know that Experian will replace D&B as the insolvency risk provider from 2015/16 and that there will be a consultation on a new scoring methodology. In addition, we understand that the PPF intends to consult, in 2014, on the levy framework “for the second triennium”.