PPF levies: all change?

Lewys Curteis contributed to the writing of this blog post

The Pension Protection Fund (PPF) released their final levy determination for 2015/16 in December 2014, setting out the guidelines for the calculation of the PPF levy for the next three years. In this post we consider actions for employers and trustees, particularly in relation to Experian’s scoring system and possible levy mitigation strategies.

Experian scoring

It remains important to ensure that Experian are calculating the insolvency scores of your scheme’s sponsoring employers correctly. Some changes were made to the scorecard allocation process in the final levy determination, which could have impacted on the insolvency scores used in the PPF levy calculation.

As well as checking scorecard allocation, we would encourage employers/trustees to check that Experian have correctly captured the financial data of the relevant companies, noting that this may include parent companies and guarantors as well as sponsoring employers.

The submission of any new company accounts could have a large impact on a company’s insolvency score. New financial information can be scenario tested prior to submission to Companies House.

Mortgages

The PPF have now clarified how they will consider mortgages and charges in determining insolvency risk. As a result of the consultation, the PPF defined a number of criteria under which Experian will exclude mortgages or charges for scoring purposes.

A successful mortgage exclusion could have a significant impact on the size of the PPF levy. The deadline for submitting mortgage exclusion forms to Experian for the 2015/16 levy year is 31 March 2015.

Type A guarantees

Schemes with Type A guarantees in place, or those looking to put one in place, will need to be aware of some of the PPF’s recent changes in relation to guarantees. In particular, a new adjustment to guarantors’ insolvency scores could render a number of guarantees worthless from a PPF levy perspective. Schemes will also need to be aware that only fixed amounts are now certifiable, i.e. certifying, for example, a scheme’s full buyout debt is no longer possible.

Last Man Standing schemes

In the past, multi-employer schemes classified as 'Last Man Standing' (i.e. where the other sponsoring employers would bear responsibility for the pension scheme liabilities if one of the other sponsoring employers became insolvent) benefited from a 10% reduction in their PPF levy. This was due to the reduced risk, from the PPF’s perspective, of these schemes entering the PPF. However, due to the PPF’s concern about the true reduction in risk, as well as evidence of incorrect classification, the PPF have brought in some changes for the 2015/16 levy year.

The most significant change is that schemes classified as “Last Man Standing” will need to submit evidence to the PPF that they have received legal advice in relation to their status in order to benefit from a reduction in the PPF levy. The deadline for this is 29 May 2015 for the 2015/16 levy year.

Asset backed contributions

Asset backed contributions have gained popularity in recent years as alternative funding arrangements. In order to gain credit for these arrangements in the PPF levy, schemes will now be required to provide an annual valuation to the PPF.  The requirements for this valuation are strict and given the potential impact on the levy, it will be important to get it right.

Other levy mitigation strategies

In line with previous years, there remain a number of other options for reducing the size of a scheme’s PPF levy. These include:

•        submitting a certificate of Deficit Reducing Contributions

•        submitting an out-of-cycle section 179 valuation (note that this may be required where a scheme no longer meets the definition of “money purchase” following recent changes to legislation)

•        submitting a more detailed account of a scheme’s investment allocation.

The table below sets out the key deadlines for the 2015/16 levy year.

Monthly Experian score measurement dates	Month ends from 31 October 2014 - 31 March 2015
Submit scheme returns including investment breakdowns	31 March 2015, 5pm
Certify deficit reduction contributions	30 April 2015, 5pm
Certification of block transfers	30 June 2015, 5pm
Submit data to Experian to impact on monthly scores	One calendar month prior to the score measurement date
Certify contingent assets, asset-backed contributions and/or mortgage exclusions	31 March 2015, 5pm
Confirm legal advice received on Last Man Standing status	29 May 2015