PPF levy deadlines 2010/11

In this Alert:

• Key points
• PPF Levy – a quick recap
• Reducing the risk
• Deadlines
• Levy determination
• The 2011-12 Levy
• In other PPF news

Key points

• Important deadlines are fast approaching for schemes to submit information for certification or re-certification of contingent assets.
• The PPF has issued new guidance and standard form contingent assets documentation.
• Schemes which already have contingent assets in place no longer receive re-certification reminders from the PPF.
• The PPF has also published its levy proposals for 2011/12.

PPF Levy – a quick recap

The PPF provides compensation to members of underfunded DB schemes when a qualifying insolvency event occurs in relation to an employer, and there are insufficient assets in the pension scheme to cover the PPF level of compensation. Compensation is funded partly by the assets of schemes for which the PPF assumes responsibility, and partly by an annual levy on potentially eligible schemes.

The PPF levy is divided into two parts:

• the scheme-based levy, which takes account of a scheme’s liabilities relating to its members; and
• the risk-based levy, which takes account of a scheme’s funding level and the risk of its sponsoring employer becoming insolvent.

Reducing the risk

As in previous years, trustees can take steps to reduce the risk-based element of the levy by making deficit reduction contributions,1 block transfers (transfers of assets and liabilities out of the scheme), or by the use of contingent assets.

The PPF recognises the following types of contingent assets in the levy calculation for 2010/11:

• parent company or group guarantees (Type A);
• security over cash, real estate and securities (Type B); and
• letters of credit and bank guarantees (Type C).

On 18 December 2009, the PPF published new standard form documents for all forms of contingent asset, together with revised guidance. Trustees entering into new contingent asset agreements on or after this date must use the new documents.

Where a contingent asset was recognised for the purposes of the 2009/10 risk-based levy, trustees must re-certify that contingent asset if it is to be taken into account for the levy year 2010/11. However, trustees/employers should speak to their advisers if changes are proposed to existing arrangements.

Deadlines

Levy years run from 1 April to 31 March and are strictly enforced by the PPF. As the PPF no longer issues reminders of when re-certification is due, the key dates for your diary are:

All certification/re-certification information must be submitted via Exchange, the on-line system for updating the pensions register (used by both TPR and the PPF), by the applicable deadlines.

Levy determination

The PPF’s levy determination for 2010/11 was also published in December 2009, confirming that:

• the PPF Board aims to collect an overall levy of £720 million;
• the levy scaling factor has been set at 1.64; and
• the risk-based levy cap is 0.5% of PPF liabilities, intended to protect “the most vulnerable 10 per cent of schemes”.

The 2011/12 Levy

In January, the PPF published its 2011/12 Pension Protection Levy Consultation Policy Statement: Insolvency Risk, which notes a number of changes to D&B’s methodology and approach to assessing an employer’s likelihood of insolvency for the next levy year, including:

• charities will no longer have to provide accounts to D&B, as it will collect this information directly from the Charities Commission (in March 2010 for the 2011/12 levy year);
• to reflect their perceived lower risk of failure, D&B will introduce a new “Nationwide” classification for businesses with branches in three or more different UK regions.

In other PPF news

Equalisation of GMPs

Following its April 2008 consultation on GMP equalisation, the PPF hasannounced that it intends to equalise the GMP element of PPF compensation.

This will be achieved by comparing benefits for men and women when a scheme enters a PPF assessment period. Members will then receive the higher overall pension of the two. For more information, see our Alert.

1 Special contributions paid into a scheme since the last valuation to reduce any deficit
2 Where 100% of assets and liabilities have been transferred out of the scheme
3 Where less than 100% of assets and liabilities have been transferred out of the scheme