Articles - 5 tips for the coming months on the PPF levy framework


The PPF recently finalised its levy framework for 2022/23 levies i.e. those to be invoiced in Autumn 2022 based on information submitted up to 31 March 2022. Whilst there’s welcome news for levy payers that many should expect a reduction from a change in the PPF’s actuarial assumptions (now using A10 s179), corporates should still be alert to the anticipated sums and what they can do to manage them. With that in mind, here are some top tips for the coming months

 By Alistair Russell-Smith, Partner & Head of Corporate DB, Samer Hafiz, Senior Actuarial Consultant, Stuart Gray, Senior Actuarial Consultant at Hymans Robertson

 1. Budget – how much is the expected levy? At this stage, a reasonably accurate estimate can be made to establish whether this is in line with expectations and whether any mitigating action might be needed. This is particularly the case for companies whose trading has been adversely affected by Covid-19 and are now starting to file accounts that cover pandemic periods. Does the data underlying the insolvency assessment look correct?

 2. Consider mitigative action – as a rule of thumb we’d say if the levy is over £100k, companies should annually consider whether they’re doing enough to manage the expense.

 3. Out of cycle s179 valuations – generally submitted every three years but submitting more frequently can allow you to “bank” favourable asset returns in the levy calculation. In particular:

 Schemes with current s179 valuations at 31 March 2020 – around this time the realisation that Covid-19 was a global pandemic was expressed in financial markets leading to depressed asset values. The issue is exacerbated by the PPF’s methodology which doesn’t, for example, allow for credit spreads so any subsequent recovery of corporate bond holdings won’t be captured.

 Schemes with significant holdings of equities or corporate bonds. Both of these could have seen significantly stronger returns than the PPF would assume in their calculations.

 A common misconception is that you need to do a full actuarial valuation. You don’t; approximate methods can be used so long as the scheme actuary can certify that, in their view, the liabilities have not been understated. It needn’t therefore be a time consuming and costly exercise. You will need audited scheme accounts though which tends to limit the number of potential valuation dates.

 4. Bespoke stress tests – for schemes with liabilities under £1.5bn this is optional but well worth considering where there are large holdings of LDI (particularly longer dated index-linked gilts). Additionally, it’s worth considering where steps to manage equity risk (e.g. through use of equity collars) have been taken. Again, you’ll need audited scheme accounts for this. And, given the interplay, it’s worth considering valuation and stress submission together rather than in isolation (in case action is inadvertently taken that increases the levy).

 5. Remember the usual mitigations – e.g. if paying significant recovery plan contributions then make sure they’re certified, if guarantees are in place could they be made PPF compliant? Often, these aspects can be explored with minimal time and effort compared to the potential savings so it’s worth corporates considering comfortably in advance of the 31 March 2022 deadline. Our analysis has found that one £1bn scheme that is in PPF levy band 4 and 90% funded on the PPF basis could save £150,000, halving its £300,000 PPF levy, by completing an out-of-cycle PPF valuation

Back to Index


Similar News to this Story

Closing the net on ghost brokers with email intelligence
As households face the biggest economic squeeze in generations , finding ways to cut the cost of everyday but essential living expenses such as moto
10 Plus C level Claims Executives share their insights
C-level claims executives from Arch, Aviva Canada, Berkley Mid-Atlantic Group and SageSure have just been announced as speakers for Intelligent Insure
Recycling knowledge to fuel green investments
Thursday is ‘bin night’ in my household. A day not to be forgotten if I want to avoid overflowing bins for the next week. It is also the weekly opport

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

Email
Password
 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS

WikiActuary

Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.