UK: PPF Levy: Final Rules For 2015/2016 Published

Last Updated: 4 February 2015
Article by Kate Richards

The PPF has published its levy determination for 2015/2016. As we reported in October, major changes include new insolvency scoring for employers, differences in how asset-backed contributions (ABCs) are recognised and technical changes to the certification of contingent assets.

New insolvency scoring for employers

A crucial factor in the calculation of the risk-based element of the PPF levy is the likelihood of the employer or employers in relation to a scheme becoming insolvent, precipitating a claim on the PPF. The new method of insolvency scoring will be undertaken by Experian. Based on information obtained by Experian, including company accounts and mortgage information from Companies House, employers will be allocated an "employer category" and then within that category given a "scorecard" predicting its risk of failure. Experian will be taking monthly scores from October 2014 to March 2015 and the aggregate will be used for the levy calculation. The new method could result in schemes receiving substantially larger (or smaller) levy demands than in previous years, but the PPF's view is that is will give a more accurate assessment of risk than the previous method of assessment operated by Dun & Bradstreet.

Last-man standing schemes

A further change from previous practice is that the Pensions Regulator will be writing to the trustees of all schemes claiming to be "last-man standing schemes" asking them to confirm that they have had appropriate legal advice to that effect. These schemes receive a levy discount (on the basis that they pose less risk).

Recognition of asset-backed contributions

Due to PPF concerns that the ABC value recorded in some scheme accounts did not give a realistic picture of its likely value to the trustees on the insolvency of the employer, in future the ABC value will be stripped out of the section 179 valuation (the "s179 ABC amount") and then (if the trustees go through the certification process) may be added back in as an asset in the PPF levy assessment (the "ABC value"). The ABC value is on an insolvency basis and the guidance published by the PPF sets out how the valuer should approach it. Income (or coupon) payments actually received by the trustees will also be taken into account as assets.

The PPF originally proposed that only ABCs backed by real property were going to be recognised. This was revised to allow other assets, but loan notes would require additional security. In the final levy determination, the security requirement has been removed and anything goes, but the key is in the valuation. The PPF requires that the valuer takes legal advice on specific aspects of the ABC and on other areas where the valuer considers advice is required to complete the valuation.

In addition to the valuation itself, the trustees must certify that they have taken appropriate legal advice. The advice must confirm that the ABC is legally binding, valid and enforceable and that the interest in the ABC does not breach the employer-related investment restrictions. The trustee must also confirm that the PPF Board can rely directly on the legal advice.

The certification process could be costly and trustees should consult with the employer when considering whether or not to certify.

Contingent assets

A key new requirement this year is that, where trustees want the PPF to take into account a type A contingent asset (group company guarantee), they will be required to certify a "realisable recovery" value. This is the lower of any fixed cap in the guarantee and the amount the trustees are reasonably satisfied that each certified guarantor could meet in full, taking into account the likely impact of the insolvency of all relevant employers. There is new prescribed wording for the certificate to reflect this new requirement.

Trustees intending to certify a contingent asset should seek professional advice.

Relevant dates

The PPF operates strict timescales for providing relevant information and documentation. The key dates for 2015/2016 are:

Deadline for submission of data to Experian to impact on monthly scores One calendar month prior to the Score Measurement Date (apart from October 2014 for which the cut off was 31 October)
Submit scheme returns on Exchange By 5 p.m., 31 March 2015
Contingent asset certificates to be submitted on Exchange and with hard copy documents as necessary to PPF By 5 p.m., 31 March 2015
ABC certificate to be received by PPF By 5 p.m., 31 March 2015
Mortgage exclusion certificates and supporting evidence to be received by Experian By 5 p.m., 31 March 2015
Deficit-reduction contributions certificate to be submitted on Exchange By 5 p.m., 30 March 2015
Deadline to confirm legal advice held on last-man standing status to be received by PPF By 29 May 2015
Certification of full block transfers to be completed on Exchange or received by PPF (in limited circumstances) By 5 p.m., 30 June 2015

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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