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FAQs: Pension Protection Levy 2007/08

• General Questions

• Levy Structure

• Contingent Assets

• Underfunding  

  (FAQs on 2007/08 Section179 valuations are also available)

• Insolvency Risk  

  (FAQs on D&B's methodology are also available)

• Multi-employer Schemes

• Block Transfers

• Waivers

General Questions

What has the Pension Protection Fund done to consult on the proposals for calculating the 2007/08 pension protection levy?
The 2007/08 Pension Protection Levy Consultation Document, published at the beginning of September 2006, contains the policies for calculating the 2007/08 pension protection levy for individual schemes. In the interest of stability, we only made minor amendments to the way the levy is calculated for individual schemes for 2007/08. The consultation period ran for four weeks.

The 2007/08 Pension Protection Levy Estimate Consultation Document, published in December 2006, includes the levy estimate, the revised levy cap and the revised approach to calculation of the risk based levy scaling factor for 2007/08. The consultation period ran for six weeks.

When will the Determination setting out the rules for calculation of the 07/08 pension protection levy be published?
The final version of Board’s Determination under section 175(5) of the Pension’s Act for the 2007/08 levy year was published early in March 2007.

Which voluntary certificates wereavailable for completion for the 2007/08 levy year? (updated 9/5/2007)
The deadline for submitting these certificates has now passed. They were:

• Section 179 Valuation Certificate - 30th March 2007
• Contingent Asset Certificates -  30th March 2007
• The Actuarial Certificate of Deficit-Reduction Contributions - 5th April 2007

The information required to complete the insolvency risk calculation for multi employer schemes was previously collected using the two-part Declaration of Scheme Structure and Participating Employers Form. This information will now be collected via the Pensions Regulator’s Scheme Return.  

Which schemes are liable to be charged a pension protection levy?
All eligible schemes, as defined in section 126 of the Pensions Act 2004 and the Pension Protection Fund (Entry Rules) Regulations 2005, must pay the scheme based element of the pension protection levy. All eligible schemes, except those whose section 179 valuation certificates showed them to be more than 125% funded are liable to be charged the risk based element of the pension protection levy.

I think that my scheme has a crown guarantee, am I still liable to pay the pension protection levy?
Before the Board of the Pension Protection Fund can take a decision in respect of the eligibility of such a scheme, it will need to see documentary evidence of the guarantee from the relevant public authority or of other arrangements made by a relevant public authority to secure that the assets of the scheme are sufficient to meet its liabilities.  

The documents that are required to prove a suitable guarantee or arrangement is in place are as follows:

• a copy of the relevant legislation in which the guarantee or arrangement is set out; or
• written evidence, preferably a document signed by a Government Minister, setting out the terms of the guarantee or arrangement.

What is the Pension Protection Fund’s definition of a sectionalised/segregated scheme?
Pension Protection Fund legislation* refers to segregated schemes which are defined as follows:

“segregated scheme” means a multi-employer scheme which is divided into two or more sections where

(a) any contributions payable to the scheme by an employer in relation to the scheme or by a member are allocated to that employer’s or that member’s section; and

(b) a specified proportion of the assets of the scheme is attributable to each section of the scheme and cannot be used for the purposes of any other section.”

As such schemes are commonly referred to as sectionalised schemes; both terms are used in these FAQs to ensure all relevant schemes are aware that these FAQs apply to them.

*Regulation 1(2) of the Pension Protection Fund (Multi-employer Schemes) (Modification) Regulations 2005

How does the Pension Protection Fund treat sectionalised/segregated schemes for levy purposes?
Each section of a sectionalised/segregated scheme is treated as if it is an individual scheme. For each section, the Pension Protection Fund will request separate data and issue a separate invoice.

How much does the Board estimate it will collect for the 2007/08 levy year and how much of that estimate will be made up of the risk based levy?
The 2007/08 pension protection levy estimate is £675m, made up of a total risk based element of £540m and a total scheme based element of £135m.

How does the formula for the 2007/08 risk based levy scaling factor operate? (updated 9/5/2007)
The levy scaling factor helps ensure that the total amount raised by the risk based levy closely matches the Board’s levy estimate. For the 2006/2007 levy the scaling factor was fixed in December 2005, movements in the risk exposure between December and March were not taken into account. As such, the final amount collected did not match the original levy estimate.

For the 2007/08 levy year we therefore decided not to calculate the final scaling factor until all the voluntary certificates and D&B Failure Scores were received at 30 March 2007. This minimises the risk of over or under collection against the Board's original estimate.

We are now able to advise that for 2007/08, the risk based levy scaling factor is 2.47.

Why is the risk based levy scaling factor for 2007/08 so much higher than 2006/07? (added 9/5/2007)
The levy scaling factor helps ensure that the total amount raised by the risk based levy closely matches the levy estimate. For the 2006/2007 levy the scaling factor was fixed in December 2005, and movements in the risk exposure between December and March were not taken into account. As such the final amount collected did not match the original levy estimate.

We are required to recoup this under collection in order to ensure fully funded compensation levels for 2007/08.

How can I be sure that the levy scaling factor will not continue to increase at this rate in subsequent years? (added 9/5/2007)
The 2007/08 £675m levy figure reflects both short term and long term risk in the industry, as well as a need to make up for some of the under-collection of the levy last year. We do not expect this to be the start of a trend towards significant increases in levy bills year on year.

What is the scheme based multiplier for 2007/08?
The 2007/08 scheme based multiplier is 0.00016. The scheme based levy will be calculated as 0.00016 x scheme liabilities on a section 179 basis as at 31 October 2006.

At what level will the risk based levy be capped for 2007/08?
For the 2007/08 levy year the risk based levy will be capped at 1.25% of liabilities on a section 179 basis as at 31 October 2006. The Board anticipates that a cap at this level will benefit approximately 5% of schemes. This is broadly the same number of schemes as were affected by the cap during the 2006/07 levy year.

Levy Structure

Why is there a levy scaling factor?
The levy scaling factor helps ensure that the total amount raised by the risk based levy closely matches the Board’s levy estimate.  A levy scaling factor is necessary because the total risk exposure across all eligible schemes is higher than the total amount the Board considers it should raise.  This is largely because the section 179 valuation basis approximates the cost of buying out PPF liabilities with an insurance company, which includes profit margins, for example. The levy estimate has been calculated on a different basis, stripping out profit and other loadings from insurance buy-out cost.

When will you be consulting on the possible introduction of an asset allocation risk factor into the risk based levy?
We consulted for 8 weeks from the beginning of December 2006 on the potential inclusion of investment risk as a risk factor in future levy years. We decided that the redistribution effect of the levy as a result of introducing this extra factor would be disproportionate to the cost incurred by schemes. We do not rule our consulting on this matter again in the future.

Contingent Assets

I put in place a contingent asset arrangement for 06/07; should I have re-certified this arrangement for inclusion in the 07/08 levy calculation?
Yes. If credit is to be given for a contingent asset arrangement in the risk based levy calculation, that arrangement should have been re-certified by 5pm on 30 March 2007. If scheme trustees believe they should have been issued a re-certification document and have not received one, they should contact the Pension Protection Fund at information@ppf.gsi.gov.uk

I have put a contingent asset in place, can I now reduce it?
Pensions liabilities are long-term in nature. Accordingly, it is important that contingent assets must provide a consistent level of protection over time, to ensure that the reduction in risk based levy offered to schemes with contingent assets in place is fair. The standard form legal documents published by the Board are designed to provide a consistent level of protection to scheme trustees.

However we recognise that trustees may be willing to allow contingent asset cover to be reduced over time, in particular where scheme funding has improved. Each of the standard form legal documents contains provisions whereby the relevant contingent asset may be reduced or replaced on an annual basis, depending on the level of scheme funding as set out in a suitable valuation, any documented special contributions, and any other contingent assets that are put into place.

If a contingent asset is removed or replaced during the levy year, the trustees/managers are obliged to notify us. We may then reassess the risk based levy in respect of that scheme.  If the reduction or removal is, in broad terms, consistent with the principles embodied in the standard form document for that contingent asset, then the Board will continue to give credit for that contingent asset but may increase the risk based levy to reflect the reduced contingent asset cover.  If the reduction or removal is inconsistent with the principles set out in the documentation, then the risk based levy for the year will be recalculated as though the contingent asset had never been in place, and no further credit will be given for that contingent asset.

We will not recognise a contingent asset in future years if its value to the scheme has been reduced in a way that is inconsistent with the principles set out in the documentation.

Why are group company guarantees credited on the underfunding and not the insolvency risk side of the risk based levy calculation?
For levy calculation purposes, the insolvency risk of the sponsoring employer(s) will be adjusted to include credit for the insolvency risk of the guarantor for the part of the funding deficit covered by the guarantee, reflecting the fact that it is the guarantor’s insolvency that would potentially lead to a call on the Pension Protection Fund.  However, as the levy formula is required by legislation to reflect the expected failure of the sponsoring employer, this will be achieved in practice by applying a discount multiplier to the value of the guarantee in the calculation of scheme underfunding of

z = 1   – probability of insolvency of guarantor
          ________________________________
             probability of insolvency of sponsor(s)

A slightly different approach applies where the scheme is more than 104% funded on a section 179 basis. Please refer to annex A of the 2007/08 Pension Protection Levy Consultation Document.

I have put in place/am considering putting in place a parental guarantee for my scheme. The parent company is based in a foreign country, how can I find out their insolvency risk?
There are two ways you can find this information:

1.Contact D&B’s dedicated UK helpline for Pension Protection Fund related queries on 0870 850 6209 who will obtain a failure score for the overseas company. For existing D&B customers this failure score will also be available directly from the D&B website .

2. Contact the Pension Protection Fund Stakeholder Support Team on 0845 600 2541 providing details of the country of domicile of the overseas guarantor and the corresponding failure score provided by D&B. The Pension Protection Fund will provide the company with a probability of insolvency for that failure score.

Do contingent assets (particularly Type B) fall foul of the statutory restrictions on employer-related investments?
Ultimately this is a question of statutory interpretation.  However the Board’s interpretation is that contingent assets of the types it will recognise for levy purposes do not constitute an investment of scheme assets/resources of the scheme by the trustees, and therefore the restrictions are not relevant.

Must letters of credit and bank guarantee contingent assets (Type C(i) & C(ii)), be denominated in sterling? (added 20/2/07)
Yes.  The standard form Type C documentation refers to pounds sterling only and the associated Type C certificates similarly require the amount guaranteed to be in sterling.

Underfunding

Why did you choose to change the date at which scheme underfunding was calculated from the end of the levy year to October 31st?
The change has been made because the Board remains concerned of the effect that changes to market conditions could have in 2007/08 and in future levy years on the Board’s ability to collect a total levy amount which closely matches the levy estimate. This is because underfunding is highly geared, and measured as the difference between two large numbers (total assets and total liabilities), so small changes in either number can lead to large changes in the underfunding amount. Such movements could still prompt considerable divergence from the levy estimate if the same approach to calculation of the risk based levy scaling factor and the scheme based levy multiplier was to be adopted for the 2007/08 levy year as was the case for 2006/07.

We believe that this alteration will ensure a greater degree of stability and certainty for levy payers and build confidence in the PPF as a provider of compensation to scheme members.

Is it still the case that schemes funded above 125% of section 179 liabilities will pay no risk based levy?
Yes. As was the case for 2006/07, schemes funded by more than 125% will pay no risk based levy at all.

I have completed a S179 valuation prior to 1 November 2006.  I have also submitted a Certificate of Deficit Reduction Contributions certificate before the 31 March 2007 deadline in relation to the deficit reduction contributions paid since the effective date of the previous S179 valuation.  Which version of the s179 guidance should be used to calculate the cost of accrual that is required for the completion of the certificate? (added 9/3/07)
Version G3/A3 of the s179 guidance should be used for valuations with effective dates on or after 11 September 2006 or with effective dates prior to 11 September 2006 that are signed after 1 November 2006.  As the certificate of deficit reduction contributions will be signed after 1 November 2006, the cost of accrual should be calculated using the assumptions as set out in version A3.

How does the PPF roll forward MFR valuations to estimate a section 179 basis?
The Board, in consultation with the Government Actuary’s Department, developed a methodology for adapting MFR valuations to estimate liabilities on a section 179 basis. This methodology has three key steps:

• Transform liabilities from an MFR valuation basis to a s179 valuation basis
• Roll forward the value of assets and liabilities to a common date
• Allow for the Pension Protection Fund levels of benefit in the rolled forward liabilities

Where can I find the MFR transformation formulae?
We published the "Methodology for adapting MFR valuations to estimate liabilities on a section 179 basis as at 31 October 2006" on 21 December under Publications on the Pension Protection Levy 2007/08 page of our website

How do I access the MSCI World (gross) Total Return Index referred to in the formulae for converting for converting MFR valuations to section 179 basis? (updated 27/2/07)
The MSCI World (gross) Total Return Index is available from the MSCI website . After agreeing to the terms and conditions of use, select ‘The World Index’ in the table.  At this point, a first time user needs to register before logging in.  Once through the login screen, select ‘Gross Index (USD)’ in the Index Type box and then enter the desired start and end dates before clicking ‘download’.  These USD rates will need to be converted into GBP using appropriate exchange rates.

In section (a)(VI) of the methodology, the assumptions for defannuityfactor(MFRrate@MFRDate) in the formulae for S179PLEqEasePre97 and S179PLEqEasePost97 (these variables concerning the part of pensioner liabilities the MFR deems to be equity related, in accordance with the MFR equity easement) say to follow the guidance in GN27 Appendix 2 paragraph A. But the summary of factors for the MFR basis at the end of the methodology document say “for the ‘equity easement’ component use … 1.1 and 10%” which are from GN27 Appendix 2 paragraph B1. Should these two references in (a)(VI) be to GN27 Appendix 2 B1, and not A?
Yes.

In section (c)(I) of the methodology, annuityfactor2 and annuityfactor4 are said to be the same as two annuityfactors in (a)(VI). However (a)(VI) contains both “standard” annuities based on MFR or S179 mortality assumptions and annuity certains based on fixed terms if the equity easement applies to the scheme. Which annuityfactors should be used?
Refer to the “standard” annuities in (a)(VI) for calculating annuityfactors 2 and 4 in (c)(I), i.e. those using mortality assumptions and not the annuity certains.

The methodology also comments that because these annuities are the same they are not critical to the eventual result of the calculation. We acknowledge that although this comment applies where the equity easement is not allowed for (i.e. when M=0, see (a)(IV) for definition of M) because the numerator annuities in (a)(VI) cancel out with those in the denominators in (c)(I), the annuities do not cancel out if the equity easement is allowed for (when M>0).

What does the PPF propose to do where a scheme has more than one level of pre 1997 pension increase? Examples could be (1) different increases depending on level of membership (say, directors and employees), and (2) different increases attributable to different periods of pre 1997 service. (added 20/3/07)
Only one level of pre 1997 pension increase is allowed for in the MFR conversion formulae.  Where schemes have provided more than one level of pension increase in their scheme return it is likely that the information that we receive from the Pensions Regulator will not be useable. If this is the case then the PPF Board will assume zero pre 1997 pension increases.

If the scheme return shows a specific percentage above 120% will you use it notwithstanding there is no requirement to have submitted the data? (added 20/3/07)
If a scheme return shows a specific percentage above 120%, then we will use it notwithstanding that there is no requirement to have submitted the data.

I submitted a Section 179 valuation before the 30 March 2007 deadline, will the scheme’s levy be calculated using the lower of its actual Section 179 liabilities and those estimated from the scheme’s MFR valuation? (added 20/3/07)
No. The PPF will only calculate a scheme’s 2007/08 levy with reference to its MFR valuation if a Section 179 valuation was not received by 30 March 2007.

Are the year of use (“U”) mortality tables for the annuity factors in section c(I) of the MFR Transformation Methodology year of birth tables? (added 20/3/07)
Yes.

For annuityfactors 1 to 4, which are for calculations concerning pensioners, year of use 2005 means a year of birth table based on the average age and a date of calculation of 2006. For example, if the average age of pensioners were 65 then the mortality table to use for annuityfactors 1 to 4 would be PMA92mcB1941.

An annuity factor calculated at age 63 is part of defannuityfactors 1 to 8. The mortality table is shown as PMA92mc (U=2006 + 63 – average age), so for example an average age of 43 would give U=2026. For an age 63 annuity this corresponds to year of birth 1963, which is the same as the year of birth mortality table for someone aged 43 in 2006.

Is the “FTSE-UK gilt TRI” index referred to in section (b)(II) of the formulae the All Stocks index? (added 20/3/07)
Yes, it is the FTSE Actuaries Government Securities UK Gilts All Stocks Total Return index.

The scheme I am working on has a gilts-matching policy and the MFR liabilities on the scheme return were calculated using a gilts-matching basis. Can I update the scheme return data to show “equity-based” MFR liabilities? If not will the MFR transformation formulae be adjusted to allow for gilts-matching MFR calculations? (added 20/3/07)
No and no. The MFR transformation formulae are an approximation which is closer for some schemes than others. We understand that the MFR valuation results asked for on the scheme return are the gilts-matching MFR results where the gilts-matching basis was used for that MFR valuation. If no section 179 valuation is supplied to the Board by 30 March 2007, then for the 2007/08 levy the MFR transformation formulae will be applied to the scheme return data as shown; no additional adjustments in respect of MFR gilts-matching will be made.

What guarantee periods should be assumed for the annuities in the MFR transformation formulae? (added 20/3/07)
Guarantee periods should be ignored for all annuities in the MFR transformation formulae.

Insolvency Risk

How do I obtain my Failure Score?
If you wish to obtain your Failure Score, please contact D&B on their dedicated Pension Protection Fund helpline where trained personnel will be available to address questions specifically relating to Pension Protection Fund issues.  This number is 0870 850 6209.  

Failure Scores as at 31 March are not available directly from the Pension Protection Fund, as D&B are best able to answer questions arising in relation to those scores.

Why was D&B appointed by the Pension Protection Fund to assess insolvency risk?
D&B is a leading provider of global business information, tools and insight, with the largest global commercial database in the world with over 100 million business records. The company has a proven track record and its scoring methodology is already viewed as credible by the industry.

D&B was appointed to the key insolvency risk calculation role following a competitive tendering exercise where all tenders were measured against specific criteria, including

• Accepted and viewed as credible by industry
• Published and transparent methodology
• Provides broad coverage of eligible schemes
• Flexible enough to take into account scheme and corporate structure in insolvency assessment
• A stable measurement of risk
• The most economically advantageous tender

Does it cost me anything to see my D&B failure score at a date other than that used for the risk based levy calculation?
Stakeholders are able to monitor their Pension Protection Fund score on a weekly basis by emailing D&B at customerhelp@dnb.com, or by calling the D&B helpline for Pension Protection Fund related queries on 0870 850 6209.

How does D&B calculate the insolvency risk for branches of foreign companies registered in the UK?
For the UK branches of foreign companies registered in the UK (identified with an FC prefix on their Companies House Registration number), we will use the Failure Score of the foreign company.  

Where that Failure Score is not available, the Board will use the average probability of insolvency for the UK sponsoring employers of defined benefit pension schemes within the relevant industry. For example, if the foreign company is a bank, the probability of insolvency for the UK branch will be the average probability of insolvency for all UK banks that sponsor defined benefit pension schemes.

In order to define industry groups, the Board will use the first two digits of the 1972 Standard Industry Classification (SIC) codes. Please note, where a three digit 1972 SIC code is given, it should be preceded by a 0. Therefore, ‘123’ would be ‘0123’ and the Board would require the two digit SIC code ‘01’

How do I obtain my industry average probability of insolvency?
A specific employer’s industry average probability of insolvency can be obtained from the Pension Protection Fund Stakeholder Support Team on 0845 600 2541 or at information@ppf.gsi.gov.uk. These will be available for 2007/08 levy year from August 2007. To obtain this information you will need to provide the employer’s two digit SIC code which can be obtained by contacting D&B’s dedicated Pension Protection Fund helpline on 0870 850 6209, or by emailing customerhelp@dnb.com.

Why are the assumed probabilities of insolvency attached to particular D&B Failure Scores different for every OECD country?
The assumed probabilities of insolvency attached to particular Failure Scores (or local equivalents) differ between OECD countries due to variations in the overall national insolvency rates which are reflected in local scoring models.

In the 2007/08 consultation document published in September 2006, the Board announced that additional rule changes could be made in respect of the D&B Failure Score and the calculation of insolvency risk. What are these changes and what affect will they have on Failure Scores?
Following consultation with D&B, the Board has taken the decision to implement a further rule change in respect of the weighting applied to County Court Judgements (CCJs) in the D&B Failure Score methodology for the 2007/08 levy year.

This rule change will limit the effect of CCJs on Failure Scores in some cases. A full description of the rule change is included in the Board’s Determination under section 175(5) of the Pensions Act 2004 which can be found on the PPF website.

Stakeholders are able to monitor their Pension Protection Fund score on a weekly basis by emailing D&B at customerhelp@dnb.com, or by calling the D&B helpline for Pension Protection Fund related queries on 0870 850 6209.  

Will the assumed probabilities of insolvency that are attached to each 1 to 100 Failure Score change for the 2007/08 levy year?
No. We will use the same assumed probabilities of insolvency for the 2007/08 levy year as were used for 2006/07. From 2008/09, we will be using the D&B methodology introduced in the summer of 2007. For more information, see our August 2007 Consultation on the Future Development of the Pension Protection Levy. This will also be covered in our 2008/09 levy FAQs

Multi-employer schemes

How will you measure the insolvency risk of multi-employer schemes for the 2007/08 levy year?
All the information that was previously gathered on the two-part Declaration of Scheme Structure and Participating Employer forms will be now be included with the Pensions Regulator’s annual Scheme Return.

The Board will calculate the weighted average of the probabilities of insolvency of all the sponsoring employers. The weighted average will then be multiplied by a factor to ensure the correct hierarchy of risk is maintained between the various types of multi-employer schemes.

This factor will be:

• 1 for those schemes with an option or requirement to segregate;
• 0.9 for a last man standing associated scheme;
• the number of members of the employer with the most members divided by the total number of members for the whole scheme for a last man standing, non-associated scheme.

I am a last-man-standing scheme, how do I know if I am associated or non-associated?
Treatment as a last-man-standing non-associated scheme is at the discretion of the Board of the Pension Protection Fund based on evidence supplied by the scheme and/or otherwise available to the Board. Evidence could include relevant parts of the Trust Deed and Rules, scheme booklets, and any booklets for employers. The Board reserves the right to contact schemes to request further information.

When completing the annual Scheme Return issued by the Pensions Regulator in respect of a multi-employer scheme, how should I apportion orphan members, and members who cannot be assigned, to the remaining participating employers?

Orphan members and members who cannot be assigned to the current participating employers, for whatever reason, should be allocated between the remaining participating employers of the scheme in proportion to the number of non-orphan scheme members belonging to each participating employer.

For example, assume a scheme has 120 members in total and 60 of these cannot be apportioned. There are 3 remaining participating employers with the following number of members:

Employer A - 10 members
Employer B - 20 members
Employer C - 30 members

The remaining 60 members should then be allocated in the same proportions i.e. 10 members to Employer A, 20 members to Employer B and 30 members to Employer C giving the following totals to be entered on the Participating Employers form:

Employer A - 20 members
Employer B - 40 members
Employer C - 60 members

Block Transfers

How can I ensure that deficit reductions made to a scheme that has undergone a block transfer are appropriately reflected? (added 1/3/07)
There are two options.  Either by carrying out the assessment of assets and liabilities on a s179 basis at an effective date after the deficit contribution, or if the assessment is carried out at an earlier date, then have the actuary fill in an actuarial certificate for deficit reduction contributions, reflecting only those contributions that occurred after the effective date of the assessment reported in the block transfer certificate.

What happens if, following a block transfer, one of the schemes does not complete its part of the block transfer certificate? (added 1/3/07)
To be taken into account for levy purposes, a block transfer certificate must be completed by both parties.  If one scheme does not complete an assessment, then the other scheme may still gain recognition for the new level of assets and liabilities by carrying out and reporting a formal s179 valuation post transfer.

I submitted a block transfer certificate that was taken into account for the scheme’s 2006/07 levy.  I have not submitted an updated valuation for the 2007/08 levy year.  Will the certificate I submitted for the 2006/07 levy be taken into account for the 2007/08 levy? (added 14/5/07)
No, for the 2007/08 levy we will only accept block transfer certificates completed in line with our 2007/08 guidelines as published on our website.

Since the effective date of the most recent valuation submitted to the PPF, the scheme has participated in a number of transfers.  In aggregate the transfers exceed the lesser of £1.5M and 5% of the value of scheme assets, although no single transfer is large enough to be classed as material for the purposes of submitting a block transfer certificate.  How can I ensure that the transfers are appropriately reflected in the 2007/08 levy? (added 14/5/07)
For the 2007/08 levy year, a block transfer certificate may only be submitted in respect of a material transfer.  Where no such transfer has taken place, the only option would have been to submit the result of a formal section 179 valuation carried out after the transfers have taken place.  However, the deadline for submission of a section 179 valuation certificate to be taken into account for the 2007/08 levy year (5pm on 30 March 2007) has already passed.   

Waivers

What is a levy waiver?
The PPF is required to levy all eligible schemes. However, some schemes that are eligible for PPF compensation and so liable to pay a levy pose very little risk to the PPF, or, by the point that they are required to pay the invoice, they pose no risk at all.

Under the Pension Protection Fund (Waiver of Pension Protection Levy and Consequential Amendments) Regulations 2007 the Board has therefore a discretionary power to waive the levy in respect of schemes that fall within a discrete set of prescribed circumstances and pose little or no risk. These schemes may apply to have either their scheme based levy, or risk based levy, or both, waived for the year in question.

The scheme will remain eligible, but no invoice will be payable for the part of the levy being waived that year.

What are the circumstances under which the Board of the PPF has discretion to waive the Levy? (updated 30th October 2007)
The Regulations in respect of waivers have very strict criteria.

Under the Pension Protection Fund (Waiver of Pension Protection Levy and Consequential Amendments) Regulations 2007 the Board has discretion to waive the pension protection levy in the following circumstances only:

1. Where it is satisfied in respect of the scheme that

(a) no further contributions will be paid towards the scheme by or on behalf of members in respect of relevant benefits; and

(b) all relevant benefits which are payable in accordance with each member's entitlement or accrued rights (including pension credit rights within the meaning of section 124(1) of the Pensions Act 1995 (interpretation of Part 1)) under the scheme rules will be provided in full by a policy of insurance or an annuity contract, even when such policies or contracts are held in members names, or by more than one such policy or contract.

2. Where:

(a) the scheme has no active members;

(b) a liquidator has been appointed for the purposes of a voluntary winding up of the company which, immediately before the time at which the scheme ceased to have any active members, was the employer of persons in relevant employment;

(c) the liquidator has sent to the registrar of companies his final account and return under section 94 of the Insolvency Act 1986 (final meeting prior to dissolution); and

(d) it appears to the Board that it is reasonable to expect that the dissolution of the company will take effect on or before 31st December of the financial year to which the proposed waiver relates (but see regulation 7).

In all cases the scheme must supply documentation in respect of each of the criteria under either 1) or 2).  

What is the difference between applying for a waiver, and being an ineligible scheme?
An ineligible scheme is not eligible to receive PPF compensation should an insolvency event occur in respect of the sponsoring employer(s), and therefore does not need to pay the PPF scheme and risk based levies, which are designed to fund this compensation.

A scheme may apply for a waiver where it is eligible, but poses very little or no risk at all to the PPF, and falls within the prescribed set of circumstances set out in the Pension Protection Fund (Waiver of Pension Protection Levy and Consequential Amendments) Regulations 2007.  

A waiver application relates to a single invoice year only – therefore a scheme must reapply for each year it believes it is eligible for a waiver.

When must a waiver application be made?
For the 2007/08 levy year, you need to contact the PPF indicating that you intend to apply for a waiver within 28 days of receipt of your invoice.

Your invoice will contain the final date that you can apply for a waiver.

You must make your application for a waiver before you have paid your invoice.

What else do I need to know when applying for a waiver?
You may only apply for a waiver where:

a) Your application is made within 28 days of receipt of your invoice, and

b) You have not yet paid your invoice.

If your application is made more than 28 days after receiving your invoice, OR you have already paid your invoice, the Board will not be able to consider your application.

How do I apply for a waiver?
Contact the PPF Stakeholder Support Team, clearly indicating that you are applying for a Waiver.

Tel  0845 600 2541
Text phone  0845 600 2542
Fax  020 8633 4903
Email  levyinvoice@ppf.gsi.gov.uk

What do I need to supply to the PPF in support of my waiver application?
The information you will need to supply in support of your application will depend upon which criteria you are applying under.

You can use the checklist to help you ensure you provide all of the correct information for your waiver category.

The checklist outlines the minimum information required, but it is not exhaustive, and you should always supply as much information as possible to assist the Board in making their decision.

You need to supply documented evidence for each piece of information requested against the criteria you are applying under

Will the Board always use its discretion to waive the levy?
The Board will not always use its discretion to waive the levy.  It will decide on an annual basis whether it is prepared to grant levy waivers for that particular year.

I successfully applied for a levy waiver last year. Do I have to reapply this year?
Yes. The Regulations require a separate waiver application to be made for each applicable year. Even if your scheme’s levy was waived on the basis of the scheme being fully insured and having insufficient assets to settle the invoice last year, we need to see evidence that the situation hasn’t changed for 2007/08.  Schemes which received a 2006/07 levy waiver should therefore reapply in 2007/08 according to the instructions above.