It's that time of year again - Christmas is a distant memory, and schemes have only two more months to meet the Pension Protection Fund (PPF) deadlines that are becoming part of the annual pensions calendar. This LawNow is a reminder to schemes of the latest PPF position on the levy calculation, together with steps that trustees and employers should consider in order to benefit from possible levy reduction for 2008/09 and beyond.
The PPF's position
On 29 November 2007 the PPF published its detailed proposals of how the levy will work from 2008/09.
Although the total levy which the PPF aims to collect for 2008/09 remains constant - at £675m - this does not mean "no change" for schemes:
- the funding threshold over which schemes pay a reduced risk-based levy has moved from 104% to 120% of “section 179” (i.e. PPF) liabilities, and schemes need to be over 140% funded to pay no risk-based levy; and
- the per-scheme cap on the risk-based element of the levy will be reduced from 1.25% to 1% of PPF liabilities.
The PPF takes the view that long-term fairness supports these proposals, which are designed to result in a higher proportion of the levy being collected from larger, more well-funded schemes.
Reducing the PPF levy
Even in the timetable available, there are still options open for minimising their PPF levies.
Submitting a PPF valuation: all schemes must submit their first s179 valuation before the statutory deadline of 31 March, not just because the Regulator may otherwise fine them, but also because the PPF can use a roll-forward from any previous MFR valuation that incorporates a year-on-year penal element, effectively reducing the estimated value of scheme assets;
Employer contribution: schemes can submit a deficit reduction certificate, reflecting any additional employer contributions made;
Contingent assets: the measure of the scheme's underfunding can be reduced if the employer pledges assets to the scheme or purchases a letter of credit - alternatively the strength of the employer covenant taken into account can be improved through another group company providing a guarantee to the scheme;
Managing failure score: the "failure score" calculated by Dun and Bradstreet for the purposes of calculating employers' insolvency risk can still be managed by employer action - most obviously by such steps as paying off bad debts. The PPF encourages employers to enter into direct dialogue with D&B as to what measures may be appropriate in their case. Note that failure scores are particularly important as the scores as at 31 March 2008 will be used for both the 2008/09 and 2009/10 levy calculations;
Ensuring up to date data is with the Pensions Regulator: the annual scheme return must be up to date, with accurate information about all participating employers. Unlike last year, schemes will not be allowed to correct data for PPF levy purposes after 31 March.
If trustees and employers wish to take any of these options they need to start the process straight away if they are to have any chance of having the arrangements in place by the deadline.
Summary: key deadlines for submitting information for the 2008/09 levy year
Section 179 valuations and contingent asset certificates - midnight on 31 March 2008
Submission of accurate scheme information to the Regulator - midnight on 31st March 2008
Actuarial certificates of deficit reduction contributions - midnight on 7th April 2008
Useful links
Please contact your regular CMS Cameron McKenna contact should you require further advice.
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