PPF levy rules T
he Pension Protection Fund (PPF) has confirmed its Determination for
the 2014/15 levy and set out its estimated levy of £695 million, which represents an increase of just over ten per cent on the previous year.
It is expected that due to a reduction in the number of schemes paying the levy, together with other factors including new contingent assets, most schemes will see their levy increase by more than ten per cent.
Dun & Bradstreet failure scores Since the consultation was published in September, Dun & Bradstreet has announced a change to its failure score methodology from early in 2014 and this will have an impact upon two or three months of insolvency risk scores for the 2014/15 levy season. The PPF has not changed the levy rules as a result of this, and so the new scores will be included in the twelve-month average calculations in the same way as for previous years. From 2015/16, Experian will be the
PPF’s new insolvency risk provider. The PPF intends to consult on the proposed scoring methodology in spring 2014.
Contingent assets
In its consultation in respect of the levy, the PPF had indicated that there would be two easements relating to contingent assets (such as guarantees or security provided to the pension scheme). The first proposed relaxation concerned
recertification. In previous years, a contingent asset could only be recertified where it had been certified in the immediately preceding year; otherwise the more onerous procedure of certification and submission as a new contingent asset would have to be followed. The PPF has now confirmed that this requirement is changed such that schemes can recertify a
32 PayrollProfessional
Stuart Earle, Pension partner at Eversheds LLP, reviews the PPF’s levy Determination for 2014/15 and comments on the impact
...FOR LEVY CALCULATION
PURPOSES, ANY SUCH CONTRIBUTION MUST BE IN CASH
contingent asset provided that certification (or the previous recertification) occurred in the last five years. This means schemes will not need to recertify a contingent asset every year if it will not make a difference to the scheme’s PPF levy. The PPF had also proposed a change to the certification wording in relation to ‘Type A’ contingent assets (i.e. group company guarantees). The proposed wording was intended to make certification easier for the trustees of some schemes. However, the PPF has confirmed in the Determination that this change will not go ahead this year. As a result, if a group company guarantee has been provided to the scheme in the required PPF format, the trustees of the scheme will still need to certify to the PPF 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 impact of the change in definition of money purchase benefits There was previously some uncertainty as to whether the PPF would be able to recalculate levy invoices for 2014/15 for schemes affected by the new definition of ‘money purchase benefits’, which is likely to come into force in 2014 and is expected to increase the defined benefit liabilities of some schemes. However, the PPF has confirmed that the Determination does not contain any rule that would enable recalculation
of 2014/15 levies for any scheme so affected.
Non-cash DRCs The PPF has stated that the arrangements for recognising deficit reduction contributions (DRCs) are intended to be a simple mechanism for rewarding cash contributions to the scheme. Where non- cash contributions are made valuation becomes more complex and the PPF considers that it is reasonable to expect the values to be audited. It also notes that schemes have the option to carry out an updated ‘section 179 valuation’ to recognise the non-cash contribution. The PPF has therefore rejected the suggestion for non-cash DRCs to be recognised and confirmed that to be recognised for levy calculation purposes, any such contribution must be in cash.
Comment There are no surprises in the Determination, as most of the proposals in the September consultation have been confirmed. It is welcome for schemes already dealing with the implications of the new definition of money purchase benefits that the PPF will not have the power to revisit levy calculations for 2014/15. Schemes whose contingent asset currently has no effect on their PPF levy will now not need to recertify the contingent asset this year, but will still be able to do so in the future providing it is within five years of the last certification or recertification. Finally, schemes should note that the deadline for certification of contingent assets is 5p.m. on 31 March 2014, and certification of any deficit recovery contributions is 30 April 2014.
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