A Heavy Levy

The PPF is finalising its rules for the 2017-18 levy. Does this mean another heavy burden for the sponsoring employers who have to pay the levy?

On 15 December 2016, the PPF published a final draft of its rules for the 2017-18 levy. This levy, likely to be invoiced in September this year, is the third year of the current “levy triennium”, covering the years from 2015 to 2017. The rules are largely unchanged from those that applied for last year’s levy and the PPF estimates a levy total of £615m, unchanged from the estimate for 2016-17. But this message of stability hides the impact of the levy calculation on individual pension schemes, with there being winners and losers having lower or higher levies when compared to previous years.

Levy experience of TDC’s clients

We have analysed the 2016-17 levies paid by our clients in autumn 2016 and compared them to the levies paid in the previous year. The average levy for 2016-17 was £45,000, significantly up on the average of £34,000 for 2015-16. Approximately half of this increase is due to the PPF calculating larger deficits on its section 179 basis as at 31 March 2016. The other main reason for the increased levy is the allocation by Experian of the sponsoring employer to a lower levy band due to increased insolvency risk. These factors of underfunding and insolvency risk are very scheme specific. One of our clients had a zero levy whereas another client had a very heavy levy of £275,000.

Headlines from the 2017-18 levy rules

  • scheme based multiplier to remain at 0.0021%
  • scaling factor unchanged at 0.65 for the risk based levy
  • risk based levy cap unchanged at 0.75% of smoothed liabilities
  • Experian scores will use a 12 month average over the period April 2016 to March 2017

The PPF will issue a final set of rules for the 2017-18 levy by 31 March 2017.

Limited changes to the rules for the 2017-18 levy

Some sponsoring employers may see their accounting information and Experian score change as a result of the move to the new UK accounting standard FRS102. As a result, the PPF now allows voluntary certification of information to mitigate the adverse impact of FRS102. Companies using the Large and Complex or Not for Profit scorecards are expected to be most impacted by this change.

A second less relevant change relates to schemes which do not have a substantive sponsoring employer following a company restructure.

Key dates for this year’s levy

  • 31 March 2017 for the submission of Scheme Return data, section 179 valuations, contingent assets, mortgage exclusion certificates, the new FRS102 mitigation certificate
  • 28 April 2017 for the certification of deficit reduction contributions
  • 30 June 2017 for the certification of block transfers

Next levy triennium, 2018-19 to 2020-21

A consultation on the rules and calculation of the levy for the next three years, to be invoiced in 2018, 2019 and 2020, is expected to be published in the spring of 2017. The expectation is that the PPF will make more substantial changes to the levy calculation for this three year period.