13: PPF levy rules and insolvency risk for 2020/2021

PPF Levy

On 16 December 2019, the Pension Protection Fund (PPF) published its Levy Rules, Policy Statement and Guidance for 2020/21, the final year in the current three-year levy cycle.

Trustees and employers should note the following key points:

• in line with the PPF’s intention to maintain stability in the Levy Rules within each three-year cycle, the levy parameters remain unchanged;
• the Levy Estimate for 2020/21 will be £620 million (up from £575 million in 2019/20). The increase is due mainly to changes in investment market conditions, in particular falling gilt yields but how his will affect individual schemes will depend on the circumstances: for example, schemes well hedged against gilt yield falls may fair better;
• the levy rules do not take into account the CJEU’s decision in the Bauer case covered in our 6 January blog here;
• the S&P Credit Model, which is used to score building societies and banks without a credit rating, is being recalibrated to ensure that it remains effective;
• the guidance on Type A contingent assets (parent or group company guarantees) has been updated, in particular, as regards guarantor strength reports, which are expected for contingent assets that result in a levy saving of more than £100,000. The changes aim to discourage a ‘tick box’ approach in assessing the ability of the guarantor to meet the amount guaranteed and instead to promote an approach which relies on a professional adviser’s judgment;
• the PPF recognises that GMP equalisation costs in statutory accounts could, in limited cases, move an employer from profit to loss albeit those costs would actually be met over a number of years. As a result, in specified conditions, employers may request an adjustment to their insolvency risk calculation in order to reduce the impact of GMP equalisation. Requests must be made within 28 days of mean scores being published (expected to be in early July 2020); and
• the deadline for certification / re-certification on The Pension Regulator’s Exchange system remains midnight on 31 March 2020. Hard copy documents, including guarantor strength reports, must be delivered to the PPF by 5pm on 1 April 2020.

Trustees and employers should be discussing the impact of the revised Levy Rules with their advisers as soon as practicable.

We are here to help if you intend to put in place or retain contingent assets in time for 31 March 2020. We have experience drafting and negotiating company guarantees and security over property and cash in a PPF complaint form and ensuring certification with the PPF within the timescales. We can also assist if you want to put in place more bespoke security for your scheme without PPF certification.

Insolvency risk

On 19 December 2019, the PPF published a consultation on proposed changes to its insolvency risk scoring methodology for the 2021/22 levy year, and on the move from Experian to Dun & Bradstreet (D&B) for insolvency risk services. This consultation closes on 11 February 2020.

D&B scores will be used from April 2020 to March 2021 for the 2021/22 levy year. The PPF and D&B have launched a new, interactive, online portal so that you can access indicative scores produced by D&B using the proposed methodology prior to April 2020.

Although D&B will be using largely the same approach as Experian, there will be changes. Trustees and employers should check they can access their indicative D&B score through the new portal, review the data used, and provide any additional data required.