The Pension Protection Fund (PPF) has published its final levy rules for the 2018-19 levy. As may have been expected following the consultation in the spring regarding changes for the third levy triennium (covering levies for 2018-19 to 2020-21) most of the proposals in the September consultation have been adopted. In particular:
- The levy estimate is confirmed at £550m.
- The risk-based levy scaling factor, the scheme-based levy multiplier and the risk-based levy cap are confirmed as previously announced, at 0.48, 0.000021 and 0.5% respectively.
- The proposed changes to the levy rates for levy bands 1 to 3 have been adopted (which drive levies up for better rated businesses).
- The proposed changes to the Experian scorecard model, including use of credit ratings, have been adopted (with some further minor adjustments). We understand that the PPF Portal will be updated this week to reflect the new scores.
- Asset and liability stresses have been updated as proposed, with no changes to asset classes or the bespoke stress test threshold of s179 liabilities of £1.5bn. Further guidance has been provided for asset stress test calculations, in particular to the allocation of alternative assets.
- The PPF has confirmed changes will be made to contingent asset forms, though some of the proposed changes will not be made. The new forms will be published in mid-January 2018 and contingent asset arrangements entered into before the new forms are published will not need to be re-executed for 2018-19.
Two welcome simplifications, following consultation responses are:
- The PPF previously suggested that most PPF compliant contingent assets would need to be re-executed for the 2019-20 levy year. However, it has now announced that only those with a monetary cap will require re execution, meaning that the two most common forms (guarantees covering a percentage of s179 liabilities or the full s75 liability) will remain valid for future levy calculations with no actions required.
- All investment expenses (including consultancy expenses) may be ignored when certifying deficit reduction contributions.
Most information must be provided, via Exchange, by midnight on 31 March 2018, though any hard-copy paperwork (for example for guarantees) will need to be with the PPF by 5pm on 29 March 2018. In addition, any schemes wishing to take advantage of the two new exemptions on block transfers will need to provide the relevant certifications to the PPF by 5pm on 30 April 2018.
Now that the levy rules have been finalised, schemes should look to confirm the estimated 2018-19 levy and review any mitigating actions such as certifying deficit reduction contributions. Those schemes putting in place new PPF compliant contingent assets (for example guarantees) for the 2018-19 levy will need to use the new forms unless these are entered into before the new forms are published in January 2018.