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PPF issues 2020-2021 levy determination

On 16 December 2019, following a six-week consultation period, the Pension Protection Fund (PPF) published its final levy rules and guidance for the 2020-2021 levy year.

The key points to note are as follows:
 

  • In line with the PPF’s intention to maintain stability in the levy rules within each three-year levy cycle, no major changes have been made to the rules.
  • The Levy Scaling Factor remains at 0.48 and the Scheme-Based Levy Multiplier remains at 0.000021.
  • The levy estimate has been confirmed as £620 million (up from around £575 million in the 2019-2020 levy year).
  • The changes have been made to the guidance relating to Type A contingent assets (guarantees), in particular around guarantor strength reports, which are required where the expected levy saving is more than £100,000 but can also be used in other cases. The changes are to “discourage a ‘tick-box’ approach in assessing the ability of the guarantor to meet the amount guaranteed and … to promote an approach which relies on the professional adviser’s judgement“.
  • A change has been made to the ‘small accounts’ definition, and the ‘S&P Credit Model’, which is used to score building societies and banks without a credit rating, is being re-calibrated.
  • The PPF has acknowledged that there is a case for adjusting its insolvency risk calculation in cases where Guaranteed Minimum Pension (GMP) equalisation costs move an employer from profit to loss. Employers will have a limited time window in which to request an adjustment where three conditions are met:
    • “a specific amount can be identified in accounts used to calculate one or more Monthly Scores that solely relates to a GMP equalisation adjustment;
    • allowing the adjustment would result in the company being viewed as reporting a pre-tax profit rather than a loss; and
    • allowing the adjustment would result in a change of Mean Score to a Levy Band with a lower Levy Rate.”
  • Some contact details have been updated and the contingent asset and other deadlines for 2020 have been confirmed. Contingent asset certificates must be submitted on the Pensions Regulator’s Exchange system by midnight on 31 March 2020. Hard copy documents, including Guarantor Strength Reports, must be delivered to the PPF by 5pm on 1 April 2020.

    • The levy rules do not take account of the Court of Justice of the European Union’s (CJEU’s) judgment in the Bauer case. This judgment was not handed down until 19 December 2019 and in its 2020–2021 Levy Policy Statement the PPF noted that, even if the judgment had “an impact which makes a case for increasing the levy, there is very limited scope to do so for 2020/21 – as the Levy Estimate is only slightly below the maximum the Pensions Act allows us to set relative to the previous year’s estimate”. The PPF has since released a statement about the judgment.

    Open Trustees’ comment

     
    Trustees and employers will want to discuss the 2020–2021 levy rules and guidance with the adviser who provides them with PPF levy support. Trustees and employers who wish to put a contingent asset into place in time for the 2020 certification deadline will also need to seek legal advice as soon as possible.

    Looking to the next PPF levy triennium, the PPF will review its levy methodology before this three-year period begins in 2021-2022.

    The PPF has already confirmed that Dun & Bradstreet will replace Experian as its insolvency risk services provider and has launched a consultation on changes to its insolvency scoring methodology from 2021-2022. It has also announced that further consultations will follow in summer and autumn 2020.

    Employers and trustees should note that the move to Dun & Bradstreet means they need to review their employer insolvency score(s) on the PPF’s new portal, check the information that Dun & Bradstreet hold, provide any self-submitted data and raise any concerns with Dun & Bradstreet as soon as possible.

    Carl Betts

    Pensions Manager
    T +44 (0) 117 917 3544
    Full Biog

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