Update on the levy calculation
Following the consultation completed earlier in the year, the PPF has now issued the final determination setting out the detailed rules for calculating the 2016/17 levy, the second year of the current levy triennium.
In line with the PPF’s objective of keeping the levy rules stable for the next two years, the September consultation on the rules proposed few changes and, for the most part, the subsequent final determination has remained broadly unchanged.
The main headlines are as follows:
- Total levy collection – the PPF estimates that £615m will be collected across all eligible schemes. Although this is a reduction from the previous levy year estimate, it is not considered material and therefore the levy scaling factor (0.65) and scheme-based levy multiplier (0.0021%) will remain unchanged.
- Mortgage exclusion certificates – most of those submitted last year will continue to be valid. Only immaterial mortgages (which now allow charges on bank accounts to be certified for immateriality) will need to be recertified. Rules on Refinance mortgages have been clarified – please see PPF mortgage guidance – see link below.
- Asset Backed Contributions – the PPF has confirmed a ‘light touch’ approach to the recertification/valuation of these. In most cases there is no requirement to obtain further legal advice for recertification, and a ‘broader’ estimate of the valuation is acceptable provided it is compliant.
- Measurement of employer insolvency risk – in the absence of data for new companies, the PPF’s rules have been extended to allow audited interim accounts to be voluntarily submitted.
Companies who voluntarily provide Experian with full accounts will be able to provide previous years’ accounts for use in trend variables calculations. Where an employer does not receive an Experian Pension Protection Score (PPS), an average of the scores of the other employers connected to the scheme will be used (provided more than 50% of scheme members are in scored employers).
- Contingent assets – guidance on certification has been updated to include the material published in February 2015, covering assessing the strength of a guarantor.
- Last Man Standing (LMS) – there are no changes to the proposed rules. However, the PPF has identified a number of schemes who have previously declared a LMS status but not confirmed that external legal advice has been received on this aspect. Schemes that have not confirmed this by 31 March 2016 will be contacted by the PPF.
A proposed change in the September consultation regarding the exchange rate methodology used for non-sterling accounts will be implemented but effective from the following levy year i.e. 2017/18.
The PPF has also confirmed that, alongside Experian, it is undertaking further analysis of the new accounting standard (FRS102) which is mandatory for accounting periods commencing on or after 1 January 2015. This change could impact Pension Protection Scores used for the 2017/18 levy year. The PPF will release further details in due course.
Key dates and actions
Deadlines for trustees and employers to engage with Experian and the PPF have been confirmed.
- Section 179 (PPF) valuation – consider whether a more recent valuation should be completed and submitted. A scheme currently undertaking a triennial valuation that is unlikely to be completed by 31 March 2016, may wish to consider completing the PPF valuation aspect early. We can assist trustees by analysing the impact of submitting an updated valuation to replace existing (older) results.
Deadline – By Midnight, 31 March 2016
- Last Man Standing (LMS) status – broadly, a last man standing multi-employer scheme is one where should one employer cease to participate in the scheme, there is no requirement or discretion to segregate the scheme. All schemes registered as LMS schemes will be required to confirm (via the scheme return) that they have received legal advice regarding this status. Trustees should consider whether this is applicable to their scheme.
Deadline – By Midnight, 31 March 2016
- Pension Protection Score (PPS) – aim to minimise the monthly Experian PPS and review the data held by Experian to ensure it is correct.
PPS information can be obtained directly from Experian’s dedicated portal at https://www.ppfscore.co.uk/
Deadline – 31 March 2016 [Work carried out after 1 April 2016 will impact the 2017/18 levy.]
- Contingent assets and asset-backed contributions – consider the (re)certification of any of these. The PPF has updated its guidance on contingent assets, particularly in relation to parent company guarantees. The PPF encourages trustees to assess the value of a guarantor in the same way as the PPF, and trustees should therefore consider the certification carefully. For asset backed contributions, detailed due diligence must be completed to substantiate the value, but there is a more relaxed approach to what is considered a reasonable valuation.
Deadline – By Midnight, 31 March 2016 [Including hard copy documents to PPF.]
- Deficit reduction contributions – get advice from your Scheme Actuary regarding certification of any deficit contributions which have been paid since the effective date of the most recently completed PPF valuation.
Deadline – By 5pm, 29 April 2016
- Block transfers – any transfers received since the effective date of the most recently completed PPF valuation, will need to be certified to the PPF.
Deadline – By 5pm, 30 June 2016
- Mortgage exclusions – Experian uses mortgage age as a factor in its insolvency rating and certain types of mortgage may be disregarded if certified to the PPF, namely:
- Refinance mortgages
- Rent deposits
- Pension Scheme mortgages
- Immaterial mortgages
In addition where a corporate group benefits from an Investment Grade CRA Rating, all mortgages will be disregarded. If you believe these exclusions might apply to you, we can assist you with the certification process.
Deadline – By midnight, 31 March 2016
Quantum Advisory is able to provide levy estimates to assist with budgeting for employers and trustees. Please contact us if you would like any further assistance.