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UK pensions speedbrief: PPF levy rules: new model gets the green light, subject to refinements

  • United Kingdom
  • Pensions - Defined benefit


Following consultation, the Pension Protection Fund (PPF) this week published its levy policy statement and proposed levy rules for 2015/16.  These confirm many of the plans described in its May 2014 consultation document (and covered in our speedbrief here), but also outline some changes made in response to feedback.  The key changes relate to secured charges and asset backed contribution (ABC) arrangements.

Many schemes’ PPF levies will change significantly under the new Experian risk model, with 40% of schemes expected to see an average increase of 150%.  As such, it is important to understand how the new model will affect your scheme and to act promptly. 

What has been decided?

Experian’s PPF specific risk model received broadly positive feedback and will be adopted, subject to some fine tuning.  Other key points arising from the consultation are summarised below.

Levy estimate: The levy estimate (the amount the PPF expects to collect) for 2015/16 is £635m, a 10% reduction on this year’s estimate.  Levy collections are also predicted to fall in each of the following two years.  This will not mean good news for all schemes, however.  There will be winners and losers, with the average increase expected to be 150% but the average decrease a more modest 40%.

Transitional protection:  The PPF looked at whether schemes experiencing a large increase in their risk based levy should be offered transitional protection, paid for by increasing the scheme based levy. The majority of consultation respondents were not in favour and the PPF decided not to offer transitional protection.

Use of credit ratings: The PPF considered whether there should be an override for entities with a credit rating, so that the credit rating would be used automatically in place of Experian scores.  Its initial reservations were supported by the concerns of respondents, so this option will not be pursued.

Secured charges: Experian’s research showed that the age of the most recent secured charge was strongly predictive of heightened insolvency risk. This variable was included in their model but met with significant opposition.  The revised plan is to disregard some charges (rent deposit deeds, charges in favour of the pension scheme and refinancings on equal or better terms) and to consult on excluding “immaterial” mortgages.  The PPF is seeking views on the most appropriate way to define and apply a test of materiality but emphasises that it will “err on the side of caution”.

ABCs: The proposal that only ABCs based on UK property assets would be recognised for levy purposes proved unpopular. The PPF has decided instead that all types of ABC may be recognised if they meet minimum legal standards. Trustees will need to re-certify the ABC annually and get professional insolvency basis valuations, as well as obtaining legal advice around issues such as enforceability.  New draft guidance has been drawn up on ABCs; the PPF is interested in receiving comments on it.

Type A PPF contingent assets (unsecured parent/group company guarantees):  The PPF has confirmed that trustees will need to certify annually a fixed sum which they are confident the guarantor could pay in the event of insolvency. The option to certify more generally that the guarantor can meet its obligations will be removed and only the certified fixed sum will count for the purposes of the levy calculation. The guarantor’s insolvency risk rating will generally be adjusted to reflect the existence of the guarantee, except where the guarantor is the ultimate parent and files consolidated accounts (in which case the guaranteed liabilities are already taken into account).

Last man standing (LMS) schemes: The position here is as outlined in the May consultation document.  The levy reduction for LMS schemes will no longer be a flat rate 10%; it may well be lower depending on the dispersal of members across employers. In addition, trustees will need to certify that they have received legal advice confirming their LMS structure. The Pensions Regulator plans to write to all schemes identifying themselves as LMS schemes on Exchange to ask them to confirm that they have taken legal advice supporting that conclusion.

Not for profits: In a change to current practice, these will be assessed against a tailored scorecard.

What are the key proposed deadlines?

  • Monthly Experian scores used for 2015/16 levy: 31 October 2014 to 31 March 2015
  • Submission of scheme returns on Exchange: 5pm, 31 March 2015
  • Certification of contingent assets: 5pm, 31 March 2015
  • Certification of asset backed contributions: 5pm, 31 March 2015
  • Certification of mortgages (to Experian): 31 March 2015
  • Certification of deficit reduction contributions: 5pm, 30 April 2015
  • Certification of full block transfers: 5pm, 30 June 2015
  • Confirmation to Regulator of legal advice on LMS status: 31 May 2015
  • Invoicing starts: autumn 2015

What next?

This latest consultation runs to 13 November 2014.  Conclusions and the finalised levy rules are due to be published before Christmas.  Except for issues on which the PPF has specifically invited further feedback (such as “immaterial” mortgages and guidance on ABCs), we would not expect significant amendments to be made to the current proposals.


The PPF’s May consultation paper prompted a lot of interest among schemes and advisers.  The PPF received the highest number of responses to a consultation since the levy began.  It has clearly considered feedback received, and made some refinements to its proposals as a result.

The PPF reports that over three quarters of schemes’ trustees have already accessed information held on the Experian portal.  Scores from 31 October 2014 will be used in the levy calculation for 2015/16 (subject to any retrospective changes relating to mortgages).  So, those who have not yet done so should review information on the portal and consider their scores as a matter of urgency. 

Periodic re-review is also recommended to check for any missing information and review the position in case there are changes.

LMS schemes and those with ABCs or Type A contingent assets should bear in mind that they are likely to have more onerous requirements than in previous years, and start dealing with those well ahead of the deadlines.

Many schemes will see a dramatic increase in their levy bill, and the PPF has now confirmed that no transitional relief will be provided.  It would be prudent therefore to get an early estimate of your levy. Affected trustees and employers will need to think about how to fund the increases and/or consider potential options for reducing the bill, such as putting in place new contingent assets.

The PPF recognises, however, that there is a risk of employers seeking to move to a more favourable Experian scorecard by amending their corporate structure and consolidating accounts.  It will retain a discretion to remove those it believes have deliberately changed their corporate structure to do this, and warns that it will keep other aspects of possible arbitrage under review.

Levy planning and cost control can be time consuming, particularly when dealing with a new and unfamiliar system.  Trustees and employers should start thinking about this now.  This should not be left on the “to do” pile until deadlines are looming.