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PPF Levy – Do you know the score?

The Pension Protection Fund (PPF) first came into existence in 2006, providing a lifeboat for members of defined benefit (DB) pension schemes. Similar to paying an insurance premium, it is funded by levies on all eligible Defined Benefit Schemes.

The PPF reviews the levy rules triennially and, after months of consultation, they have now confirmed their final rules for the next levy cycle (2018/19-2020/21). Importantly, there were few changes to proposals outlined in the consultations earlier in the year.

Key outcomes…


Total levy set to fall but not everyone is a winner

The total levy estimate for 2018/19 will be £550 million, which is 10 per cent lower than 2017/18 (£615 million).  This reflects an improved funding position within the PPF.

The PPF’s impact assessment shows nearly two in three schemes will pay a lower levy under the new rules. Small employers are expected to be particular beneficiaries, with their levies expected to be down by a third overall. The largest employers (or smaller employers with larger ultimate parents) will generally see an increase in levies to better reflect their estimated insolvency risk.

QA View: We have seen many entities in the SME category who are subject to a deterioration in their score and likely to see a significant increase in their levy. Therefore, whatever the size of the sponsoring employer, it is vital that the Experian scores under the new methodology are reviewed via the portal (


Proposed updates to the insolvency risk scoring have been adopted

For example, investment grade credit ratings will be converted into Experian scores for publicly rated companies and industry specific scorecards will be used for FCA regulated institutions. The PPF’s analysis has shown that these ratings are a more suitable predictor of insolvency, and therefore they have sought to introduce these ratings, where available, to determine insolvency risk.

QA view: It is difficult to argue against this proposal; rating agencies have models in place which are far more suitable predictors of insolvency.


Parental Guarantees and Certification of Contingent Assets

Where a Guarantee is likely to provide a levy reduction of £100,000 or more, trustees will be required to obtain a guarantor strength report, prepared by a professional adviser (with a duty of care to the PPF), prior to certification. Note that the PPF has slightly relaxed the future filing requirements of contingent assets – only those with a monetary cap will require recertification.

QA view: This will be an extra administrative burden and incur fees. However, taking into account the PPF’s ‘disappointment’ at the number of rejected certifications, a more robust reporting requirement could lead to more certifications.


Simplified certification of Deficit Reduction Contributions (DRCs)

There is no longer a requirement to allow for investment expenses (including consultancy expenses). Also, ‘small’ schemes (closed schemes with liabilities less than £10m) will now be able to simply certify the contributions paid in accordance with the recovery plan.

QA view: This is a welcome change. Calculating investment expenses from ‘opaque’ charging structures increased time cost and often materially offset the levy credit upon certifying. Also, the simplification for small schemes should ensure greater levels of certification.


How Quantum Advisory can help…

Our experience with clients has shown us that the scoring system is not always easy to follow and the ‘What-if’ Tools can be particularly user ‘unfriendly’. We have also seen in many cases that the data/scorecard are incorrect. Therefore, it is crucial that appropriate assistance is sought to ensure Employers aren’t overpaying on their levies.

However, our service is not limited to simply reviewing the data, we can also provide sensitivity analysis to highlight options where the levy can be reduced significantly. We have also developed a strong relationship with the PPF and Experian over recent months and here are some of the examples where we have had significant success:

  • Received credit notes from the PPF up to a value of £100,000 in acknowledgment of a data discrepancy
  • Outlined a solution to an Employer that will likely save £600,000 on their 2018/19 Levy.
  • Advised an SME Company on the impact of a change in their Corporate structure which will mitigate a hugely significant increase in their levy. Based on our levy estimates, the increase in levy could have resulted in an Insolvent Principal Employer.

The insolvency risk used in the 2018/19 PPF levy calculation will be a six-month average from October 2017 to 31 March 2018. If employers need to correct any data held by Experian they should therefore do this as soon as possible.

The key dates as outlined by the PPF are listed below:


Item Key dates
Monthly Experian Scores Between 31 October 2017 and 31 March 2018
Deadline for submission of data to Experian to impact on PPF-specific Monthly Scores One calendar month prior to the Score Measurement Date
Submit scheme returns on Exchange By midnight, 31 March 2018
Reference period over which funding is smoothed 5-year period to 31 March 2018
Contingent Asset Certificates to be submitted on Exchange By midnight, 31 March 2018
Contingent Asset hard copy documents to be submitted as necessary to PPF By 5pm, 29 March 2018
ABC Certificate to be sent by e-mail to PPF By midnight, 31 March 2018
Mortgage Exclusion (‘Officers’) Certificates and supporting evidence to be sent to Experian By midnight on 31 March 2018
Accounting Standard Change certificate By midnight on 31 March 2018
Special category employer certificate By midnight on 31 March 2018
DRCs Certificates to be submitted on Exchange By 5pm, 30 April 2018
Certification of full block transfers to be completed on Exchange or sent to PPF (in limited circumstances) By 5pm, 29 June 2018 (Exempt transfer application by 5pm 30 April 2018)
Invoicing starts Autumn 2018


Kanishk Singh, Consultant at Quantum Advisory