PPF Levy Determination: Stability is the goal
27 / 01 / 2016
The Pension Protection Fund’s “levy determination” for the 2016-17 levy year has now been published. A key feature is the PPF’s recognition of the importance of stability as regards amounts due from levy-payers. Less material (or not, as the case may be!) is the PPF’s extension, of the deadline for the submission or certification of contingent assets, from 5pm to 12 midnight on 31 March 2016.
In September of last year the Pension Protection Fund (PPF) launched its regular annual consultation regarding the levy rules for the forthcoming levy year. This however was the first consultation following the switch from Dun & Bradstreet to Experian’s bespoke insolvency risk model. The new model places more emphasis on financial indicators, and represents a shift away from non-financial measures (such as the number of directors) that characterised D&B’s approach.
The PPF would undoubtedly have been relieved to report, earlier this month, how the responses received indicate that the new model is working well. This is of course, a generalised statement: indeed, some of Wedlake Bell’s clients have seen a significant rise in the quantum of their PPF levy since the introduction of the Experian model, and have experienced much frustration when trying to challenge their increased levy due to the “Computer Says No” approach seemingly adopted by Experian.
Steady as she goes!
One of the key messages resulting from the consultation was schemes’ and employers’ desire for stability in relation to the level of their levy. In recognition of this the PPF has decided to limit material changes to the triennial review, with (as a result) few changes having been made to the final levy rules for 2016/17: the levy factors themselves remain unchanged from last year’s determination, for example.
So what changes have in fact been made this year? They predominantly relate to the certification of certain mortgage exclusions and asset-backed securities:
- Where schemes benefit from certificates relating to investment grade credit ratings, (most) pension scheme mortgages and rental deposit deeds, these certificates can now be carried forward rather than having to be re-certified on an annual basis. In relation to these certificates the PPF has said that it will check that previously-certified credit ratings continue to be investment grade.
- Employer scores will, going forward, show the effect of re-certification. This will be backdated to April, so that schemes can assess the impact of any such re-certifications.
- New companies will be able to submit interim accounts in support of contingent security being granted.
- A lighter touch to asset-backed contribution arrangements (“ABCs”). In certain circumstances it will be possible for trustees to:
- rely on previously obtained legal advice for re-certification; and
- update a previous valuation rather than obtain a full valuation at each re-certification date.
Trustees and their advisers should also note that the usual 5pm deadline for submission of scheme information and certification of contingent assets on 31 March has been extended to midnight for 2016.
And for next time…
The more material changes which we understand the PPF may address in next year’s levy determination are:
- the impact of the introduction of the new accounting standard FRS102, under which certain companies will have to disclose a pension scheme deficit on their balance sheet for the first time (see the separate article elsewhere in this Bulletin); and
- conversion of foreign currencies used in the Experian score.
The PPF has issued a reminder to trustees and employers that they should have the right risk reduction methods in place to ensure their PPF levy is kept to a minimum. Examples include increasing payments into the scheme (whether regular or one-off payments), introducing new contingent assets, or increasing the value of existing contingent assets. We previously wrote about how the value of intellectual property can be harnessed for the benefit of schemes and employers alike, and this remains something which parties may wish to consider, particularly if they have experienced a recent hike in their PPF levy: click here to read more.
In addition, those companies which submit abbreviated accounts should note that they may benefit from submitting full accounts to the PPF for current and preceding years as this will allow better-informed trend calculations to be conducted.