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PPF consultation on levy rules for 2019/20

  • United Kingdom
  • Pensions


Last week the Pension Protection Fund (PPF) issued its consultation document on its proposed levy basis for 2019/20 (which is the second year in the current triennium).

The PPF has confirmed that last year saw the highest level of claims in its history and has commented that calls on the PPF over the next year could be even higher. That said, there are generally only minor adjustments being proposed in the consultation document. The exception to this is the PPF’s proposal to charge a risk reflective levy for commercial consolidator vehicles. The PPF also reminds schemes with Type A and/or Type B contingent assets containing a fixed cap, that these will need to be moved onto the PPF’s new standard form in order to receive levy credit for the asset in 2019/20.

The levy estimate and methodology

The PPF has announced that its estimated total levy for 2019/20 is £500 million, which is down almost 10% from the 2018/19 levy year. Despite the record level of claims (and the reported c.£1.4 billion of contingent liabilities in relation to expected claims), the PPF has stated that its funding position is strong and that it is on track to achieve its long term funding objective.

Other points to note on the calculation of the levy are:

  • there are no proposals to make changes to the parameters that the PPF uses to set the levy estimate. However, it is proposed that schemes without a substantive sponsor (SWOSS) and commercial consolidator vehicles (see further below) will need to carry out a bespoke stress test irrespective of their size
  • it is not intended that the S&P credit model will be extended for use by the PPF beyond the regulated financial services sector to additional regulated entities (this is something that the PPF said it would consider in its 2018/19 Policy Statement)
  • minor adjustments to the guidance on certifying deficit reduction contributions and block transfers are proposed
  • the PPF is consulting on how it can better support schemes to plan for and pay the levy (including the possibility of payment by instalments)

The consultation document also notes that the PPF is still considering the impact of the recent ruling in the case of Hampshire v PPF (see our Speedbrief) where the Court of Justice of the European Union ruled that PPF compensation limits are unlawful insofar as they result in affected members receiving less than 50% of their original pension entitlement.

PPF levy for commercial consolidators

In its March 2018 white paper “Protecting Defined Benefit Pension Schemes” (see our Speedbrief) the government announced plans for a new style of DB consolidator vehicle to enable DB schemes to be brought within larger bodies (other than via a traditional buy-out with an insurance company) and benefit from shared functions and improved governance. It would appear that it is envisaged that these arrangements would be operated as occupational pension schemes with a company set up to fulfil the role of an employer – and that these vehicles could therefore be eligible for protection from the PPF.

With some commercial consolidators now starting to emerge in the market, the PPF is consulting on a new rule to allow it to charge a risk reflective levy for these types of arrangements. The PPF recognises that commercial consolidators are likely to pose different risks than “conventional” schemes and a key objective for the PPF is to ensure that there is no cross-subsidy from other levy payers.

The PPF is proposing to base its levy for commercial consolidators on the methodology that it established for SWOSS but with some adjustments. The PPF expects commercial consolidators to have an automatic wind up trigger if funding falls below a minimum level – if they do not, it is proposed that the PPF levy would be increased to reflect the additional risk. Similarly, it is proposed that the PPF will require certain information (for example, valuations) to be provided at set times and that if this isn’t complied with, appropriately prudent assumptions in respect of the levy would be put in place for that arrangement.

The PPF recognises that the methodology for levying commercial consolidators will need to develop over future years, particularly given that the regulatory regime is not yet in force.

Re-execution of contingent assets

As the PPF has already announced, it is proposed that Type A and Type B contingent assets containing a fixed amount in the cap (including those where the fixed sum element is within a “lower of” formula) will need to be moved onto the new standard form agreements (issued in January 2018) if schemes want to receive levy credit for the asset for 2019/20.

The PPF has said that Type C contingent assets are not affected by this issue. However, for Type C contingent assets that are renewed annually, the PPF has stated that its preference is for schemes to move onto the new standard form when they come to refresh their asset after expiry.

It is proposed that schemes that are re-executing their contingent asset onto the standard form will generally need to provide the same documents to the PPF as for any new contingent asset by the deadline of 5pm on Friday 29 March 2019 (although it is expected that a refreshed/updated legal opinion by reference to an existing legal opinion would be acceptable). However, for schemes with Type A contingent assets that decide to move to the new standard form by way of “amendment and restatement” (as opposed to re-executing a new guarantee afresh), the PPF is consulting on whether there will be any relaxation on the documentation requirements.

Where a guarantor strength report was produced for a guarantor for 2018/19 and a report for the same guarantor is required for 2019/20, it is proposed that a refresher report explaining what has changed would be acceptable.

The PPF is urging schemes affected by the re-execution requirements to take early action to ensure that everything is in place for the deadline in March 2019 and has produced a video (available on its website and YouTube channel) explaining which schemes are affected and what they need to do. The PPF has also asked for views on whether any further guidance is needed to help trustees complete the re-execution of contingent assets.


The PPF is of the view that the current levy model is operating well, although it has also been clear that it will keep the position under close review given the increasing level of claims. It is not surprising that the PPF wishes to levy the new commercial consolidators and it will be interesting to see how the rules around this develop over the coming levy years as the market grows and the regulatory regime is formed.

The PPF’s consultation will close at 5pm on 25 October 2018. The PPF intends to publish a summary of the responses and final Determination and confirmed policy in December 2018.