Pension Protection Fund Levy Certification – deadline approaches

By 31st March 2018, trustees and sponsors need to have submitted certifcations for any contingent assets which they are seeking levy reduction from for the Pension Protection Fund (PPF) 2018/2019 levy year.

Some trustees will be looking to certify group company guarantees (“Type A” contingent assets), whilst others may be seeking to value asset backed contribution (“ABC”) structures. Many will have received levy benefit from these assets in previous years and will need to re-certify for 2018/19 to do so again.

In mid-January 2018, updated guidance was released by the PPF. Whilst guidance for certification of ABCs remains largely unchanged, there are a number of fundamental changes to certification requirements for Type A Contingent Assets (guarantees) for the 2018/19 levy year.

The headline changes include:

  • Where the levy saving from a guarantee is over £100k, a guarantor strength report (“GSR”) needs to be obtained by trustees. A GSR which is considered by the PPF to be consistent with the guidelines will ensure a levy saving. Pages 13-16 of the PPF guidance set out in detail the areas it expects to be covered in a GSR.
  • Where the levy saving is less than £100k, a GSR is optional but obtaining one will likely ensure a levy saving and the PPF has indicated that it will look very closely (this year) at situations where levy savings are just below £100k and no GSR has been obtained.
  • In providing a GSR a duty of care must now be given to the PPF by the trustees’ advisers.

With additional requirements this year, it is likely that trustees will need more time to prepare and to understand whether a GSR is required (through confirming the quantum of targeted levy saving).

Three golden rules

We continue to reiterate our three golden rules for smooth PPF certification which have applied in previous years:

  • Answer the “exam question” – the PPF prescribes a scenario under which the value of a guarantee or an ABC needs to be tested for levy determination purposes. This scenario requires the assumed insolvency of all of the scheme employers (except the guarantor, if it is an employer).  Appropriate expertise, enquiry and challenge of assertions made by the employer are required to reach a robust understanding of the potential implications of this theoretical scenario. The PPF’s latest guidance now includes a detailed list of areas it expects to be covered in a GSR (see pages 13-16 of the guidance)
  • Engage early with the employer and guarantor – the deadline for contingent asset submissions is 31 March 2018 and it will take time to gather the correct information and make the necessary enquiries of the employer as to the likely financial and operational impact of employer insolvency.  It is unlikely to be a scenario the employer considers regularly and in our experience some trustees and employers can underestimate the time needed to complete the certification process.
  • Keep records – even where a GSR isn’t prepared, trustees should maintain the evidence that they relied upon to certify the guarantee (or value the ABC). The PPF appears to be applying more scrutiny for the 2018/2019 levy year – it is best to be prepared.

At Lincoln Pensions, we continue to guide many of our clients through robust and successful PPF certification and valuation exercises.  We also assist trustees in situations where the PPF has requested further information or rejected the certification of guarantees.

If you would like more information, please get in touch with your usual Lincoln Pensions contact or with Matt Harrison, Managing Director, telephone: 020 3889 6300.

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