News
Steps to reduce your PPF levy
2010/11 levy year
The Pension Protection Fund (PPF) has recently confirmed arrangements for levies payable for the 2010/11 year. As always, there are a number of measures that trustees and sponsoring employers should consider at this time of year to minimise the amounts payable. For example:
Deficit-reduction certificates
The PPF will base the levy on the information it holds at 31 March 2009 on both:
- the funding position of the scheme (its section 179 valuation results), and
- the financial strength of the sponsoring employer (as measured by the failure score assigned to it by ratings agency D&B)
The PPF will again take account of any deficit-reduction contributions certified by the scheme actuary and submitted to it on Exchange. In this way, it’s possible to take account of contributions paid up to 31 March 2010. If a sponsoring employer is considering making a significant additional contribution to improve scheme funding, it may help to pay this before 31 March so it can be included on the deficit-reduction certificate (DRC).
Submitting a DRC
As long as previously submitted DRCs remain valid, the PPF will use them again. Where it’s appropriate to submit a DRC this year, this will need to be completed on Exchange by 5pm on Friday 9 April 2010.
It may be appropriate to instruct your scheme actuary to prepare a DRC this year if:
- a DRC hasn’t been completed before (it may be possible to include up to five years’ deficit contributions)
- a previous DRC has become invalid, in other words if updated section 179 valuation results have been recorded on Exchange during the year to 31 March 2009 (noting that it may still be possible for the replacement DRC to reflect over two years’ deficit contributions), or
- further significant deficit-reduction contributions have been paid to the scheme between 1 April 2009 and 31 March 2010
It won’t be appropriate to complete a DRC in every case. A number of factors should be considered, including:
- the scheme’s funding position on the section 179 basis
- the sponsoring employer’s D&B failure score
- the relative sizes of the potential levy saving and the small additional fee we charge for providing the certificate (fees will remain unchanged from last year’s levels)
If you’d like to explore whether a DRC would improve your scheme’s PPF levy, then please get in touch with your usual AEGON Trustee Solutions scheme contact. Please make sure we receive all DRC requests by Friday 26 February 2010.
Contingent assets
Remember that sponsoring employers can reduce their levy by certifying (or recertifying) a contingent asset. There have been a number of minor changes to the contingent asset regime this year, and we’d encourage you to discuss your needs with your legal advisers in good time. The deadline for submitting contingent asset certificates this year is 5pm on 31 March 2010.
2011/12 levy year
D&B failure scores at 31 March 2010
It’s important that sponsoring employers carefully examine whether they can
take any steps to maximise their D&B failure score at 31 March 2010, since the PPF will use this next year to determine the levy for 2011/12. The deadline for giving D&B any new information is 5pm on the previous day, 30 March 2010.
On 29 January 2010, the PPF published its 2011/12 Pension Protection Levy Consultation Policy Statement: Insolvency Risk. The full document is available to view on the main Levy page of the PPF website. The following key points could affect your D&B failure score:
- A new attribute called ‘nationwide’ will be introduced for businesses with three or more branches in different UK regions which will mean they are assessed as a national rather than regional employer. If you think you may be affected by this change, you should contact D&B as soon as possible to make sure it holds the correct information on your branch locations. This attribute can’t be appealed after 31 March 2010.
- When measuring the failure score of a subsidiary whose ultimate parent company is at substantial risk of going bust, the score of the subsidiary will be that of the parent. A parent at severe risk is one with a failure score between 1 and 10. You should make sure D&B has the correct information on your group structure.
- Employers that seek changes to their industry sector or geographical region will need to provide evidence to support that change. If you think you’ve been assigned to the wrong sector or employer, contact D&B to find out the evidence required.
- PPF-compliant contingent assets will be excluded by D&B in their scores. This means that the PPF will inform D&B about which employers have pledged contingent assets.
In addition to the above, D&B has increased the insolvency risk probability assigned to each failure score. While this will affect the levies of all schemes, particularly those with the highest failure scores, its effect is expected to be significantly mitigated by a reduction in the levy scaling factor applying for the 2011/12 levy year.
What you need to do
The PPF strongly urges schemes to contact D&B about their sponsoring employers’ failure scores, and to begin work on levy-reduction measures and the related voluntary certificates, as soon as possible before 31 March 2010. You can call D&B on 0870 850 6209 or email customerhelp@dnb.com
