2014/15 Pension Protection Levy Consultation: Sackers’ response

Background

The PPF published its consultation on the 2014/15 Pension Protection Levy Determination on 5 September 2013.  The PPF’s intention is that the levy parameters are unchanged for 2014/15, meaning the total levy will be £695 million.  This is an increase of 10%.  Changes have been kept to a minimum but the PPF proposes procedural improvements to the recertification of contingent assets after a gap in certification and a revised form of wording for the trustee certification of Type A contingent assets.

In this response:

• Re-certification of assets
• Trustees’ certification for Type A Contingent Assets
  
• Bridge Trustees
• Draft Guidance

Re-certification of assets

We welcome the PPF’s proposal to allow re-certification of contingent assets where certification or recertification has occurred no more than five levy years previously.  The ability to recertify a contingent asset within five years of its certification / recertification, provided the underlying guarantee remains in place, will be very helpful in simplifying the process for our clients.

Trustees’ certification for Type A Contingent Assets

The revised wording of the Trustees’ certification of Type A contingent assets explicitly sets out what we considered to be the position under the original certification.  Nonetheless, we consider that the changes are helpful as they make clear that trustees need to:

• make “reasonable enquiry” into the financial position of the guarantor; and
• be “reasonably satisfied” that each guarantor can meet its obligations under the contingent asset, as certified.

However, we would draw your attention to the fact that the new certification states that trustees have taken into account the “likely impact of the immediate insolvency of all of the relevant employers”.  The previous certification contained no reference to the consideration of the impact of insolvency, but (at paragraph 5.2.13) the contingent assets guidance stated, “it is appropriate therefore for the trustees’ consideration of the guarantor’s position to take account of the reasonably foreseeable impact of the insolvency of the employer whose liabilities are being guaranteed, assuming that were to occur in the near future”.  A similar paragraph is now contained in the draft contingent asset guidance at paragraph 5.1.14.

It is crucial that the final documentation makes clear whether trustees are to assess the “likely” or the “reasonably foreseeable” impact of the employers’ insolvency.  We would suggest the guidance is amended to match the wording proposed in the consultation.

Our approach to the original certification requirement already met the PPF’s new requirements set out in the consultation.  For this reason, we envisage no issues with introducing the new wording in 2014 / 15.  However, those who have not employed such an approach to date may appreciate additional time to comply.

Bridge Trustees

Our understanding is that a consultation on the application of the new definition of “money purchase benefits” following Bridge Trustees will be issued shortly and that the DWP intends to bring the legislation into force on and from 1 April 2014.

As the consultation is not yet available, we do not feel we can comment on whether it will be appropriate for a rule change to be included in the final Determination for 2014 / 15.

Our main concern is that schemes which are materially affected by the change in the definition are given sufficient time to plan how to manage their new liabilities, including the changes in scheme funding valuations and the pension protection levy.

Draft Guidance

We would also make the following points on the mismatch between the determination and the guidance:

• There is a difference between the new wording of the trustees’ certification for a type A contingent asset and the wording of the guidance (see above).  It is imperative that it is clear whether trustees must assess the “likely” impact or the “reasonably foreseeable” impact of the relevant employers’ insolvency and that the same terminology is used in the determination and the guidance.
• Similarly, in paragraph 5.1.2 of the guidance it states that, “trustees should satisfy themselves that they have no reason to believe the guarantor would not be able to pay the certified amount if called upon to do so”.  However, as noted above, the certification requires trustees to be “reasonably satisfied that each certified guarantor…could meet its full commitment under the contingent asset”.  We would ask that the PPF ensure the guidance and the Levy determination are consistent.
• As a general point, to minimise potential for difficulties, it would be helpful if the PPF’s requirements on contingent assets were clear from the publication of the final levy determination and guidance.  Our clients experienced problems in the levy year 2013 / 14 as changes to the PPF’s approach were published only weeks before the deadline for certification / recertification.