Pensions Newsletter November 2011
Inside this issue:
Is your Guarantee worth the paper it is written on?
The PPF issued a consultation document in September in relation to proposed changes to the Pension Protection Levy which included a draft determination for 2012/13. Along with this was published a draft version of the accompanying Contingent Assets Appendix which includes an additional requirement in relation to guarantees which may have a significant impact on trustees in terms of ensuring the strength of any guarantee provided for the purposes of reducing the levy imposed on the scheme.
Justification for these changes is based on the PPF’s analysis of current Type A agreements. Their research has found evidence to suggest that some guarantors may not be able to meet the obligations that they have taken on making the reduction in risk that is achieved by having the arrangement in place of little or no value. The document makes clear that a contingent asset, under the proposed new arrangements, that does not reduce the risk of compensation being payable relative to the reduction in levy it secures may be rejected.
The PPF have also made clear in the consultation document that if they have any reason to question the value of any guarantee to a scheme then they have the power to request “independently verifiable information” in order to make an informed decision as to its real value and if this information is not provided within the appropriate timescales to ignore the contingent asset entirely when calculating the levy.
A draft of the Contingent Assets Guidance includes further information on the certification required which is worded as follows: “The trustees have no reason to believe that each guarantor, as at the date of the certificate, could not meet its full commitment under the contingent asset.”.
It is stated that the wording has been drafted in the negative form in order to allow Trustees to certify where they reasonably believe the amount being certified could be met by the guarantor, “without having to obtain absolute certainty as to the ability of the guarantor to do so”.
If the proposals come into force as currently drafted then the new requirements will need to be met for any certification of a guarantee, or indeed recertification of an existing guarantee, from 1 April 2012 so it is important to check now any guarantees that are currently in place to see if these will have the strength required to meet the stricter tests.
The final determination and accompanying documentation is due to be published in December, we will provide an update on the position in our December edition of the Newsletter.
Have you identified your statutory employer? - Update
We highlighted in last month’s newsletter that the Pilots case was subject to an appeal due to be heard in November. This appeal was withdrawn at the start of November.
Levy Reduction Consultation
The DWP is consulting on amendments to various levies which relate to the figures that will be payable for 2012/13 onwards.
The Occupational and Personal Pension Schemes (Levies Amendment) Regulations 2012 Consultation, which is open for responses until 30 January 2012, relates to two separate levies, the PPF administration levy and the general levy.
The PPF administration levy, which is payable by schemes eligible for the PPF, meets the costs of administration in relation to the Pension Protection Fund and the Fraud Compensation Fund.
The general levy, which is payable by all registrable occupational and personal pensions schemes, meets the administration costs of the Pensions Ombudsman, the Pensions Advisory Service and some of the administration costs of the Pensions Regulator.
As currently drafted the proposed amendments represent a decrease of at least 25% in respect of the PPF administration levy and a decrease of at least 12% in respect of the general levy.
PPF confirms equalisation approach
Following on from a consultation published initially in April 2008, the PPF have now confirmed, in a statement, the approach it intends to take in relation to equalising GMPs and has commenced a 6 month pilot study of this involving a number of selected pension schemes.
The method that has been chosen from the four methods which were proposed in the 2008 consultation document is “Method 2”, or “Modified Method 2” as it is referred to in its application to PPF compensation.
This method, referred to as the underpin approach, compares the benefits that would have been payable for service between 17 May 1990 and 6 April 1997 in respect of two individuals who are identical in every way except for one being female and one being male. Whichever is the higher benefit is the one which should be paid.
The approach set out in the statement will also apply to the Financial Assistance Scheme and further guidance is expected to follow on this.
The statement makes clear that it is only intended for schemes currently in the PPF or that are expected to transfer to the PPF and that the DWP will be consulting separately in relation to equalisation for schemes in general.
LGPS: sea change again
Forthcoming amendments to the Local Government Pension Scheme could have a significant impact on employers and employees, says Mairi Black
Coming fast on the back of the overhauls in April 2008-09, change is afoot once more in relation to the Local Government Pension Scheme (“LGPS”). This public sector scheme has always been seen as a valuable recruitment tool for local authorities and public sector employers, where access to final salary pension provision has until now always been available.
Click here to read the rest of this article by Mairi Black in the Journal of the Law Society of Scotland.
The information contained in these articles is given for general information only, reflects the current law on the date of the article, and does not constitute legal advice on any specific matter