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08 February 2021
39: PPF Levy rules and contingent assets for 2021/2022
On 25 January 2021, the Pension Protection Fund (PPF) published its Levy Rules and Contingent Asset Submission Guidance for the 2021/2022 levy year. Trustees and employers should note the following key points:
- a new permanent ‘small scheme adjustment’ (SSA) may offer a welcome reduction in the PPF levy for schemes with smoothed PPF liabilities of under £20 million. The SSA will provide a 50% reduction of the uncapped levy for schemes with under £20 million in liabilities. There will also be a tapered reduction down to zero for schemes with liabilities between £20 million and £50 million;
- the risk based levy cap will be reduced from 0.5% to 0.25% of a scheme’s liabilities. This reduction will apply to all schemes regardless of size. Scheme’s already subject to the levy cap could therefore see a 50% reduction in their levy. This change reflects the fact that fewer schemes have benefited from the cap in recent years. However, this is not a permanent change and will be reviewed for 2022/2023;
- insolvency risk scores calculated by Dun & Bradstreet (D&B) will continue to be measured on the basis in use from the end of April 2020 and will be used for the 2021/2022 levy invoices. Schemes and employers are encouraged to monitor this aspect of scoring related to ultimate parent companies because of the greater potential for change due to Experian’s more adaptive approach; and
- the PPF offered levy payment easements for 2020/2021 in recognition of the impact of coronavirus. The use of the easement has been fairly limited in practice but the PPF will continue to monitor the financial impact of coronavirus through 2021 and will announce its policy on continuing to offer easements before issuing the 2021/2022 levy invoices in the autumn of 2021.
- the standard form contingent asset documents have been updated to reflect the fact that it may be harder to enforce a UK judgment in relation to contingent assets in an EU member state post Brexit. The UK is now party to the Hague Convention on Choice of Court Agreements, which applies only to exclusive jurisdiction clauses. As such, the standard documents now contain an option to choose an English (Scottish / Northern Ireland) exclusive jurisdiction clause instead of the previous non-exclusive jurisdiction clause. New contingent assets should use the updated forms but the PPF does not require existing contingent assets to be re-executed using updated January 2021 standard form documentation and has confirmed that a change to the jurisdiction clause of existing contingent assets is a permitted change;
- the PPF has encouraged trustees to consider the potential impact of the Corporate Insolvency and Governance Act 2020 on realisable recovery where a guarantor is an entity that is able to enter into a moratorium and its assets could become subject to ‘super priority’ creditor claims in the event of an insolvency within 12 weeks of the moratorium ending. This will be of particular relevance to larger schemes that are required to provide a guarantor strength report. The PPF will also consult on its proposed approach to levy band adjustments for companies entering into moratoriums but the PPF thinks the risk of this happening in practice is unlikely in the near future; and so those adjustments will not take effect until the 2022/2023 levy year; and
- the PPF kept the rule introduced last year allowing contingent asset agreements and supporting documents to be submitted by email. However, the deadline for certification / re-certification on The Pension Regulator’s Exchange system is still midnight on 31 March 2020 and the deadline for submission of soft copy documents by email remains 5 pm on 1 April 2021.
How we can help
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 2021. We have experience drafting and negotiating company guarantees and security over property and cash in a PPF compliant 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.