Following a consultation launched in September, the Pension Protection Fund (PPF) has confirmed the 2013/14 pension protection levy estimate.

As originally proposed, the levy has been set to £630m.

The PPF confirmed that it will reduce the levy scaling factor from 0.89 to 0.73, and the scheme based levy multiplier from 0.000085 to 0.000056, to raise the necessary amount, ensuring fewer schemes will have their levies capped.

The other rules used to set the levy will remain the same, the organisation says, except for a relaxation in the requirements for a guarantee from a bank, or from a custodian, so that in future an A- credit rating will be sufficient.

Alongside the rules, the PPF has updated guidance for putting in place contingent assets following informal consultation with stakeholders, to give a better steer to schemes on what to consider when planning to use guarantees as contingent assets.

All eligible schemes are now reminded of the key dates and deadlines for the 2013/14 levy year. These are:

- Information from scheme returns submitted by 5pm on 28 March 2013 will be used to calculate individual levies. The Pensions Regulator's Exchange system will continue to be the sole point of data submission for the purposes of the PPF levy – and submissions can now be made.

- Insolvency risk will be measured using the average annual Failure Score of each sponsoring employer measured on the last working day of each month, from 30 April 2012 to 28 March 2013. 

- The deadline for certification and/or re-certification of contingent assets will be 5pm on 28 March 2013. 

- Deficit reduction contributions that have been made up to and including 31 March 2013 must be certified by 5pm on 30 April 2013. 

- Full block transfers that have taken place up to and including 31 March 2013 must be certified by 5pm on 28 June 2013. 

- We will use market data over five years to smooth funding levels. For levy year 2013/14, we will use market data for each week day in the five-year period up to 31 March 2013.

- The date to which we will transform section 179 valuations is 31 March 2013. These transformed values will be subject to smoothing and stressing.

Alan Rubenstein, the PPF's chief executive commented on the decision by saying: "I am grateful to all those who took the opportunity to respond to the consultation. As would be expected responses to our consultation focused on the Levy Estimate. We have seen pension scheme funding deteriorate significantly in the last eighteen months and claims in the first few months of the current year, have exceeded our annual levy. However the Board decided, exceptionally, to hold down levies in 2013/14, so that schemes will typically see levies at similar levels to this year.

"It remains however our guiding principle, as developed and consulted on as part of the levy framework, that the amount we levy should rise or fall with movements in scheme risk and this will continue to apply. I am grateful for the recognition therefore that the action the Board has taken for 2013/14 was exceptional and levy increases in future should be expected if the current high risk conditions persist." 

Aidan O'Mahony, partner at Aon Hewitt said: "We are pleased to see more detailed guidance for trustees on the area of guarantor strength for putting in place genuine guarantees for PPF levy purposes. However, the guidance places additional responsibility on trustees as their judgement is required on a number of factors.

"As the PPF suggests that trustees should consider the impact of an insolvency on items such as inter-company debts, intangible assets and investments in subsidiary companies, we believe that covenant advice could be required in many cases."

Milan Makhecha, principal consultant at Aon Hewitt, said: "The additional information from the PPF is helpful, but it could deter some trustees from putting guarantees in place, especially if they have any doubt they will be accepted by the PPF, which we think is not in the best interests of de-risking pension schemes in general".

First published 18.12.2012

azeevalkink@wilmington.co.uk