The Pension Protection Fund (PPF) has published its final determination and levy rules for 2019/20. It has not made any substantial changes to the draft levy proposals issued in September. Trustees and employers should act now to reduce the levy amount payable for their scheme, for example, by implementing contingent asset agreements, re-executing existing agreements or agreeing deficit reduction contributions.
As the PPF is on track to meet its long-term funding target, it has set its levy estimate (the amount it expects to collect) at £500 million - £50 million less than the estimate for 2018/19. It has also confirmed a levy scaling factor of 0.48 and scheme-based levy multiplier of 0.000021 (that is, £21 per £1 million of liabilities).
Schemes with any Type A and B contingent assets that include a fixed sum maximum amount element will need to re-execute their contingent asset agreements, using the standard form agreements published by the PPF in January 2018 if they wish to obtain levy credit. The re-executed versions must be certified by 31 March 2019 and hard copies must reach the PPF by 5pm on 1 April 2019 (one day later than originally proposed).
Schemes which use other types of contingent assets to obtain levy credit will need to ensure that they are recertified (and Guarantor strength reports submitted, where relevant) by 31 March 2019.
Guarantor strength report
From the 2018/19 levy year, trustees had to obtain a guarantor strength report prior to certification of a contingent asset, where the levy benefit of the contingent asset would be £100,000 or more. The PPF has reviewed the reports received and commented that:
- it expects the provider of the report to be an independent, external adviser
- the same requirements (as to the nature of the report) apply whether the levy saving is above or below £100,000, for example, the requirements regarding advisers' duty of care to the PPF applies where the levy saving is expected to be under £100,000
- the duty of care requirements cannot be caveated by any separate terms between the adviser and the trustee, and
- advisers should make sure that the basis of the assumptions used in creating the reports is clear.
The PPF put in place a new rule for 2019/20 to allow it to charge a risk-reflective levy on commercial consolidators – superfunds established to take over the administration and management of defined benefit schemes from the employers that set them up. The PPF developed its approach to commercial consolidators in a way which dovetails with the approaches proposed by the the DWP and the Pensions Regulator in their consultation document published on 7 December 2018, Consolidation of defined benefit pension schemes.
In particular, it has decided to take a principles-based approach to the recognition of buffer funds for levy purposes which will require trustees to obtain advice that certain tests are met and to share that advice with the PPF. This might involve obtaining a legal or other appropriate professional opinion. The PPF will also have discretion to apply a levy discount where suitable wind-up triggers are in place, backed by high level principles about what the PPF would consider to be suitable.
The PPF expects to develop its approach further as the market for commercial consolidators develops.
Paying the levy
The PPF intends to make changes to the invoicing process in 2019, to try to ensure that invoices reach the right person as quickly as possible. It will also review and publicise its existing policies on payment plans and waiving interest. It will continue to look into whether it should introduce more widespread payments by instalment, particularly in respect of small and medium sized levy payers.
- Submit scheme returns on Exchange - By midnight on 31 March 2019
- Guarantor Strength Reports (where relevant) to be completed and Contingent Asset Certificates to be submitted on Exchange - By midnight on 31 March 2019
- Contingent Asset hard copy documents where required (including Guarantor Strength Reports) to be posted/delivered to PPF - By 5pm on 1 April 2019
- ABC Certificate to be sent to PPF by e-mail - By midnight on 31 March 2019
- Mortgage Exclusion (‘Officers’) Certificates and supporting evidence to be sent to Experian by e-mail - By midnight on 31 March 2019
- Accounting Standard Change certificate to Experian by email - By midnight on 31 March 2019
- Special category employer applications (and confirmation of no change) to PPF by email - By midnight on 31 March 2019
- Deficit-Reduction Contributions Certificates to be submitted on Exchange - By 5pm on 30 April 2019
- Exempt transfer applications with supporting evidence to PPF by e-mail - By 5pm on 30 April 2019
- Certification of full block transfers to be completed on Exchange or sent to PPF (in limited circumstances) - By 5pm on 28 June 2019
- Invoicing starts - September 2019