The Pension Protection Fund (PPF) has published its Levy Estimate for the 2013/14 levy year.
The PPF estimate for 2013-14 is £630m; an increase of 15% from the 2012/13 estimate of £550m.
Readers will note that the Levy Estimate, which the PPF states was the main focus of the responses to the consultation exercise, has increased by less than the PPF is permitted to increase the levy by under the New Levy Framework.
Contingent asset procedure
There have been no material changes in policy since the consultation exercise, and the PPF reiterated its commitment to making as few changes as possible to its Levy Rules.
The changes described by the PPF in its consultation document in 2012 have, largely, been carried through. In particular, the increased levy estimate has caused a change to:
- the PPF's levy scaling factor - which helps it distribute the levy among eligible schemes - which has been confirmed at 0.73
- the scheme-based levy multiplier - used to calculated the scheme-based levy - which has been confirmed at 0.000056
Contingent assets: certification as to guarantor resources
Since 2012, the PPF has required scheme trustees to certify that the resources of a guarantor are sufficient for it to meet its obligations under a guarantee.
In 2012, this procedure caused a reduction in the number of guarantees submitted by schemes. It also caused an increase in the number of guarantees rejected by the PPF after submission or re-certification.
This latter point has caused some concern; not least because the test that the PPF required trustees to apply to scheme guarantors is less stringent than that applied by the PPF itself.
The PPF has acknowledged this feedback, but has expressed a concern of its own; that trustees had been prepared to certify a contingent asset in circumstances where it seemed to the PPF that the guarantor would not be able to pay in the event of the failure of the employer. It has, therefore, retained the test.
The PPF suggests (see 3.2.11) that trustees may prefer to apply the PPF's own, more stringent, test in assessing guarantor strength, but falls short of requiring trustees to commission formal covenant assessments in respect of guarantors.
It indicates only that a covenant assessment may be used for two purposes by reminding schemes that 'the Regulator may expect [a covenant assessment] where a contingent asset is being used as part of a recovery plan'.
So as in 2012-13, the PPF will continue to carry out its own investigations as to guarantor strength. Trustees should continue to keep a record of the steps they have taken in case the PPF wants to see what they relied on in giving the certification.
Type C contingent assets: credit rating for 'acceptable financial institution'
The PPF has confirmed that it will relax the credit rating required to qualify as an 'acceptable financial institution'.
Such institutions can be used to provide bank guarantees (Type C contingent assets) or to be the custodian for a portfolio of securities underpinning a Type B Contingent Asset. The required rating will now be set at A- (Standard and Poor/Fitch) or A3 (Moody's).
The PPF has (and has been careful to retain) a policy that it will not permit data corrections after a scheme's levy has been measured.
Further to consultation, the PPF has decided to exercise its discretion in permitting some errors to be corrected. In making this allowance, it seems to us that the PPF has focused on errors made in certifying deficit reduction contributions where the certification has (e.g.) been made within a day of a scheme's s.179 valuation. Schemes should not, therefore, rely on the PPF exercising this discretion generally.
Essential (and inflexible) deadlines
- Scheme returns must be submitted on to Exchange by 17:00h on 28-03-13. Readers should note the earlier deadline date which is the last business day in March (Good Friday falling on 29 March 2013).
- Certification of contingent assets must be made to the PPF by 17:00h on 28-03-13 (Ibid)
- Deficit reduction contributions must be certified by 17:00h on 30-04-13
Invoicing will start in Autumn 2013.
Trustees should now be considering the following actions:
- ensuring that their scheme return's record of investments is split accurately
- where a guarantee is already in place, steps to investigate the strength of the guarantor should be implemented
- for a new guarantee, trustees should satisfy themselves that they will be able to give the appropriate certification
For more information and assistance, please get in touch with your usual pensions contact.