On 17 December 2019, the Pension Protection Fund (PPF) confirmed the rules for the 2020/21 levy year, the third and final year of the current triennium.
The final determination contained very few changes from the consultation document published in September (link to previous briefing) and maintain the PPF’s aim to, as far as possible, keep the levy stable over each three-year period.
Total levy collection – As noted in the consultation, the total PPF levy estimate for 2020/21 is £620m, which compares to the estimate of £575m for 2019. Schemes that hedge a significant proportion of their liabilities should not see a material rise in their levy (assuming their insolvency risk is unchanged).
GMP equalisation adjustment – In cases where GMP equalisation costs can be explicitly identified in a sponsoring employer’s accounts AND results in a pre-tax loss instead of a profit AND this serves to shift the sponsor into a lower levy band over the levy year, the PPF will provide ‘relief’ and allow an adjustment to be made. This relief is likely to apply in an extremely limited number of cases.
Full and Small Accounts – Experian previously used the account descriptions provided by Companies House to determine whether entities were assessed on a “full” or “small” scorecard. The PPF has now amended the rules so that the actual make up of the accounts and data items are assessed before making this classification.
Guarantor Strength Reports were introduced in 2018/19 as a requirement for schemes with contingent assets where the anticipated levy saving exceeded £100,000. The PPF has slightly revised their guidance in this area with the aim of future reports providing a holistic assessment and avoiding a tick-box approach.
Section 179 valuations with an effective date of December 2018 or later should be submitted including a best estimate allowance for GMP equalisation. Where the levy is based on earlier section 179 valuations, no explicit adjustment is necessary.
Beyond the 2020/21 Levy Year…
While there are very few changes for the 2020/21 levy year, the PPF launched its consultation for the 2021/22 levy on 19 December 2019 and this includes the move from Experian to Dun & Bradstreet as its provider of insolvency risk scores. We will shortly be issuing a further briefing discussing the key changes in more detail.
If you would like any further information in relation to any of the above, please get in touch with your usual Quantum Advisory contact.