What’s in store for PPF levies?

Alan Collins

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Spence & Partners latest blog for Pension Funds Online –

With many schemes currently receiving confirmation of a hike to their Pension Protection Fund (PPF) levy (the invoices for 2015/16, the first year where Experian risk ratings apply, have begun to arrive), the PPF has just issued their consultation document for the computation of the 2016/17 levy.

Given the substantial shift brought in for 2015/16, it is some comfort that the PPF have “chosen to keep the levy rules substantially the same for 2016/17”. In particular, the main levy calculation parameters (such as the scaling factor, the scheme-based levy multiplier and levy bands) will remain unchanged.

The headline figure is that the Levy Estimate for 2016/17 is GBP 615 million, down from an estimated GBP 635 million for 2015/16.

The main reason for the reduction is an anticipated improvement in insolvency risk scores (i.e. schemes climbing up the Experian ladder), offset in part an anticipated further increase in underfunding risk (i.e. increase in scheme deficits).

Of course, this does not mean that every scheme will see a reduction in the levy – there will still be winners and losers and some schemes may face substantially higher levies.

The Experian model will be kept under review, but indications to date suggest that the PPF are content with the current outcomes.

The PPF will also be working with Experian and other stakeholders to assess the impact, if any, of the change in the UK accounting standard to FRS 102. It is noted however, that any impact will not come through in full until the 2018/19 year.

Trustees and employers should remember that PPF levy management, and in particular the management of the Experian risk rating, is an all-year round activity. The final Experian risk rating is a 12 month average of scores throughout the year (April-March), so last minute rushes will not have a significant immediate impact.

Other technical changes are also proposed, the main ones being:

  • For mortgage exclusions, only immaterial mortgages will need to be re-certified;
  • The rules on the exclusion of “refinance mortgages” will be clarified;
  • For accounts published in non-sterling denominations, the exchange rate used to convert to pounds will be the rate in force at the most recent accounts date; and
  • Companies who only submit abbreviated accounts to Companies House will be able to submit preceding years’ full accounts to Experian for consideration, extended the current provision where only the most recent full accounts could be submitted.

The PPF is also seeking feedback in relation to the issues surrounding certification and recertification of Asset Backed Contributions (ABCs) and is looking to reach a final landing on whether or not certain schemes can be treated as Last Man Standing (LMS).

For schemes which have been incorrectly treated as LMS, the PPF may re-invoice for prior years as required.

As ever with PPF levy management, early action, ensuring all the paperwork is submitted on time and a watchful eye for any scheme specific changes are the keys to success.

Pension Funds Online

Alan Collins

Post by Alan Collins

Head of Trustee Advisory Services at Spence he provides actuarial, funding and investment advice to trustees and sponsors of ongoing defined benefit schemes.

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