November 07
Changes for PPF compliant contingent assets on the horizon

On 19 October the Pension Protection Fund (PPF) issued a further consultation on contingent assets certified for recognition in the PPF levy.  This followed earlier doubts expressed by the PPF in March regarding the wording of the standard form contingent asset agreements and the feedback received which was published in September.

This new consultation focuses primarily on the operation of liability caps under Type A (group company guarantees) and Type B (charge over assets) contingent asset arrangements.  The PPF wishes to address the issue of whether payments made under the guarantee but not as a result of the insolvency scenario (i.e. in respect of ongoing or deficit contributions) should erode the liability cap such that in the event of the insolvency scenario occurring the liability cap applicable is considerably lower than the original cap put in place.
 
The PPF has identified its preferred approach for dealing with this issue in the case of single employer schemes, namely, that the liability cap should only apply in the event of employer insolvency so that no erosion can apply.  However, it is seeking views on how best to address this issue for multi-employer schemes noting that different approaches are likely to be appropriate in the case of fully segregated, partially segregated and last man standing schemes.
 
The consultation runs until 21 November and the PPF hopes to publish final versions of the standard contingent asset forms in January 2018.  For existing Type A and Type B arrangements it is unlikely that re-execution will be required in 2018/19 but action to adopt the new standard forms will likely need to be taken in 2019/20.
 
The PPF also recently published in draft details of the new guarantor reporting requirements for the 2018/19 levy year for Type A contingent assets which result in a reduction in the risk based levy of £100,000 or more.  This is a change to the originally proposed threshold of Type A contingent assets with a certified realisable recovery of £100 million.  It is estimated that the new reporting requirements will cover one fifth of Type A contingent asset arrangements and it will bring the reporting requirements for these arrangements in line with the recertification requirements for asset backed contribution arrangements.
 
The Pensions Regulator’s 2016 scheme funding statistics states that 11% of schemes have contingent assets that are formally recognised by the PPF with a further 8% of schemes have contingent assets that are not formally recognised.  We consider that the above proposals should be welcomed as they provide greater clarity and certainty to the existing regime and reflects the PPF’s proactive role in monitoring the best way to price risk in its levy calculations. 
 
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