Articles - PPF consultation proposes minor changes to the levy rules


The Board of the Pension Protection Fund (PPF) consultation document on the 2019/20 levy published on 20 September 2018 is closing on 25 October 2018. When the levy rules were set for the 2018/19 levy, they were designed to remain in force for three levy years until 2020/21. As a result, only minor changes are proposed for 2019/20, but more significant changes are expected from 2021/22.

 By Kevin Burgess, Senior Consultant, XPS Pensions Group 
 
 Total levy estimate and scaling factors
 While the PPF notes that market conditions are detrimental to funding, recent valuations submitted have been better than anticipated on the roll-forward approach, contributions have been paid to improve funding and insolvency scores have improved.
  
 The scaling factor will remain 0.48, the scheme-based multiplier will remain 0.000021 and the risk-based levy cap will remain at 0.5% of the smoothed liabilities. The resulting levy estimate is £500m, which is lower than the £550m estimate for 2018/19, despite the fact that the levy parameters remain unchanged.
  
 Insolvency risk
 The PPF is content that the revised insolvency risk methodology is working well, so is not proposing any changes apart from some minor clarifications.
  
 The 2019/20 levy will be based on the 12-month average insolvency scores over the period from April 2018 to March 2019.
  
 Contingent assets
 The PPF is concerned about a potential loophole in the wording of contingent assets. As a result, all schemes with a contingent asset which incorporates a cap of a fixed amount will need to re-execute the contingent asset on the new form or lose the credit on the levy. To continue receiving the levy saving, affected schemes must submit information online by 31 March 2019 and provide paperwork to the PPF by 5pm on 29 March 2019.
  
 Deficit reduction contributions (DRCs)
 As part of the simplifications that were made to the DRC certification process for the 2018/19 levy, the PPF has clarified the wording on the exclusion of investment expenses. They have also amended the guidance to make it easier to submit information online via Exchange.
  
 Commercial consolidators
 The Government’s recent White Paper on defined benefit pensions supports the establishment of commercial entities to consolidate pension schemes. The PPF has given consideration to how to calculate a levy on commercial consolidators, given that the risk is focussed on the investments rather than the sponsor’s covenant, and proposed a methodology similar to that proposed last year for schemes without a substantive employer.
  
 Assisting levy payers
 The PPF indicates that it is keen to help levy payers and has considered two elements:
 • how to help schemes understand the size of future levies by providing levy estimates; and
 • helping schemes pay their invoices by considering payments in instalments.
  
 What happens next?
 The consultation on the 2019/20 PPF levy closes on 25 October 2018, with conclusions and the final Determination to be published in December 2018.
  
 2018/19 PPF levy invoices
 The PPF has started issuing the levy invoices for 2018/19. These should be paid within 28 days of the date of the invoice to avoid interest being added at the rate of 5% per annum above bank base rates. Any correct invoices should be appealed within the same timescales otherwise the right to appeal will be lost.

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