Pensions and Employment: Pensions Bulletin

Transcription

1 slaughter and may Pensions and Employment: Pensions Bulletin ISSUE 04 Legal and regulatory developments in pensions In this issue Countdown to Auto-enrolment Auto-enrolment client seminar on 23rd February, 2012 Regulator s guidance updated Cross-border employees: DWP consultation Tax Taxing asset-backed pension contributions: further changes Withholding tax on US source income: FATCA developments Points in Practice PPF levy 2012/13: action plan...more...more...more...more...more...more FRC to consult on actuarial standards for pension incentive exercises Warning on early release pension schemes EU Pensions Developments EIOPA s advice to the EC on review of the IORP Directive European Commission White Paper on pensions Miscellaneous Legal Business Awards 2012 AEGON longevity swap...more...more...more...more...more...more To access our Employment/Employee Benefits Bulletin click here. Contents include: Unfair dismissal: Increase to qualifying period Compromise agreements under the Equality Act 2010 Supreme Court: Territorial jurisdiction for unfair dismissal claims Court of Appeal: Fixed-share partner in LLP was not an employee Expiry of fixed-term contracts may not trigger collective consultation Indirect age discrimination in cost-based selection procedure Restrictive covenants: meaning of solicitation Back issues can be accessed by clicking here. To search them by keyword, click on the search button to the left. Find out more about our pensions and employment practice by clicking here. For details of our work in the pensions and employment field click here. For more information, or if you have a query in relation to any of the above items, please contact the person with whom you normally deal at Slaughter and May or Rebecca Hardy. To unsubscribe click here.

2 Countdown to Auto-enrolment Auto-enrolment client seminar on 23rd February, 2012 The slides from this are available on request to clients. For copies of the slides or of our auto-enrolment action list, please Lynsey Richards (lynsey. Regulator s guidance updated The Pensions Regulator has published new versions of its detailed guides on automatic enrolment to cover changes implemented following the Making automatic enrolment work review. The guides include new content: on postponement, setting out the circumstances in which employers can postpone assessment and automatic enrolment of workers, on DC certification, on whether a person is ordinarily working in the UK, including further examples for employers, clarifying the use of salary sacrifice and flexible benefit arrangements, and updating the staging information in the light of the Government s announcement on 25th January, 2012 that it was postponing the introduction of auto-enrolment for employers with fewer than 250 employees. The revised guidance is on the Regulator s website. Cross-border employees: DWP consultation On 20th February, 2012, the DWP published draft regulations for consultation on its proposal to exempt employers who employ individuals who work both in the UK and in other EU member states from the requirement automatically to enrol those individuals. The exemption will apply to those individuals who are subject to the social and labour laws of EEA member states (i.e. who are qualifying persons under the cross-border provisions in Part 7 of the Pensions Act 2004). It is possible that a small number of individuals will be both a qualifying person for cross-border purposes and a jobholder under the Pensions Act 2008 (a dual-status worker ). Admitting a dual-status worker into a UK pension scheme under the autoenrolment requirements will subject that scheme to the requirements of the cross-border legislation, in particular the requirement that the scheme be fully funded at all times. The DWP estimates that around 9,000 individuals could be dual-status workers. The draft regulations, on which responses are invited by 2nd April, 2012, are on the DWP website. Comment: The proposal to exempt employers from the obligation to auto-enrol dual status workers is a sensible one. Tax Taxing asset-backed pension contributions: further changes On 29th November, 2011, the Government announced a new tax regime for asset-backed pension contributions (see our client briefing of November, 2011 for further details). On 22nd February, 2012, the Government announced additional restrictions on tax relief for assetbacked pension contributions. These will apply to contributions paid on or after 22nd February, Transitional rules will effectively defer any further tax relief for employers with existing asset-backed funding arrangements which do not meet the standards set out in the new rules, so that the relief becomes available only when the arrangement is terminated. SLAUGHTER AND MAY 2

3 In addition to the restrictions announced in November, 2011, the new rules set out a detailed and prescriptive list of features which must be present in an acceptable asset-backed funding arrangement. These include a requirement for the pension fund to receive its return in a series of regular annual instalments (and not, for example, by way of a bullet payment when the transaction is terminated). Additionally, tax relief is clawed back if the arrangement ceases to meet all of these requirements at any point. Action point: Employers that have already implemented asset-backed pension fund transactions need to review their arrangements to see how they are affected by these changes. For further information please get in touch with your usual pensions contact at Slaughter and May. Withholding tax on US source income: FATCA developments Overview Pensions Bulletin 12/02 referred to US legislation (The Foreign Account Tax Compliance Act 2010 ( FATCA )) that, subject to concessions and exemptions yet to be agreed, may subject non-us pension funds that invest in the US to withholding tax on payments of US source interest, dividends and capital gains unless the fund enters an agreement with US IRS to undertake onerous information reporting. Draft Regulations On 8th February, 2012, the US Department of the Treasury published draft regulations relating to the information reporting by foreign financial institutions ( FFIs ) and the withholding tax. The proposed regulations expand the categories of deemed compliant FFIs. In particular they expand the category of retirement plans that are treated as posing a low risk of tax evasion and so are exempted. FFIs that satisfy the requirements for being deemed compliant are not required to register with the IRS but are required to certify to the withholding agent that they meet the requirements of the deemed compliant category. The proposed requirements for retirement plans are that: they are organised for the provision of retirement or pension benefits under the law of the country in which they are established or in which they operate, contributions consist only of employer, government or employee contributions and are limited by reference to earned income, no single beneficiary may have a right to more than 5% of the scheme assets, and contributions to the scheme must be excluded from the income of the beneficiary and/or taxation of the income attributable to the beneficiary must be deferred under the laws of the country in which the scheme is organised or operates, or the scheme must receive 50% or more of its total contributions from the government or employers. Alternative approach to implementation The US Treasury also proposed an alternative approach to implementation whereby the FFI can satisfy the reporting requirements if it collects the necessary information and reports it through its own country s government, which enters into an agreement to report the information annually to the IRS. On 8th February, 2012, the US and 5 EU member states (including the UK) published a joint statement outlining this alternative approach to implementing the information collection and reporting requirements. The approach will involve the US and the partner country entering into an agreement under which the partner country agrees to implement legislation: SLAUGHTER AND MAY 3

4 to require FFIs in its jurisdiction to collect and report to its tax authorities the required information, to enable FFIs established in that country (other than FFIs that are exempt) to apply the necessary diligence to identify US accounts, and to transfer to the US on an automatic basis the information reported by the FFIs. The draft regulations are on the US IRS website. The joint statement is on the UK Treasury website. Comment: The proposed removal of the condition for deemed compliance that the retirement plan not allow US participants or beneficiaries is welcome and should mean that most UK pension schemes will fall within the deemed compliant exemption. However, until the draft regulations come out in final form, uncertainty will continue for UK pension funds that are considering making illiquid investments in US investments which will be caught by FATCA until the exemptions in the draft regulations emerge in final form. Points in Practice PPF levy 2012/13: action plan Pensions Bulletin 12/03 referred to the PPF levy 2012/2013 determination and listed the key deadlines and some points to note. Attached are our action list and more detailed note, outlining the main steps that need to be taken, and by whom, in order to minimise the 2012/2013 levy. Action point: Trustees and employers should read the note and the accompanying action list carefully, looking in particular at the deadlines. Failure to meet the deadlines can be extremely costly in terms of impact on the size of the PPF levy. FRC to consult on actuarial standards for pension incentive exercises On 15th February, 2012, the FRC s Board for Actuarial Standard ( BAS ) announced that the FRC is to consult on bringing actuarial work on pension incentive exercises into the scope of its technical actuarial standards ( TAS ). The consultation will also consider whether the TASs should include specific principles to be followed when providing actuarial advice on incentive exercises. The announcement is on the BAS website. The consultation has not yet been published. Comment: The announcement follows the Government s proposal (Pensions Bulletin 11/18) to introduce a Code of Practice later this year for those involved in implementing incentive exercises. Warning on early release pension schemes On 25th February, 2012, the Pensions Regulator, FSA and HMRC jointly issued a warning about early pension release schemes, schemes that claim to permit members to access cash from pension schemes before the member reaches age 55. The schemes usually work by transferring the member s pension fund into an investment structure, frequently based overseas. An example was the Pension Reciprocation Plan operated by Ark Business Consulting (Pensions Bulletin 01/12) where a trustee appointed by the Pensions Regulator obtained a High Court ruling that payments to members were unauthorised for tax purposes and amounted to an invalid exercise of the trustee s investment powers. The authorities highlight the risk in such schemes and suggest that anyone who is considering one should check the FSA register to ensure that the provider is authorised. Any concerns should be addressed to the FSA s consumer helpline, the Pensions Regulator or HMRC. The Regulator s press release is here. The FSA s warning is here. SLAUGHTER AND MAY 4

5 Action point: The warning follows the publication by HMRC of draft legislation firming up the tests to be satisfied for an overseas scheme to qualify as a Qualifying Recognised Overseas Pension Schemes ( QROPS ) and imposing new reporting requirements on registered pension schemes making transfers to QROPS. The changes are expected to take effect on 6th April, Schemes involved in such transfers should proceed with caution and ensure that the formalities required by the trust deed and legislation are followed to the letter. Failure to do so will result in the trustees not obtaining a valid discharge, with the liability remaining with the scheme despite having made the transfer. So the scheme (and ultimately the employer in relation to the scheme) will have to pay twice. EU Pensions Developments EIOPA s advice to the EC on review of the IORP Directive Overview On 15th February, 2012 EIOPA published its advice to the European Commission on its proposed review of Directive 2003/41/EC (the IORP Directive ). The advice was provided in response to a request from the Commission on 7th April, The advice covers: the scope of the IORP Directive, cross-border aspects, what quantative requirements should apply to IORPs and how these should be measured, what qualitative requirements, particularly in respect of governance, should be applied, what information should be provided in respect of IORPs to members and beneficiaries, and to supervisory authorities, and the extent to which the legislative framework for IORPs should be similar to that for other financial institutions and products, in particular the Solvency II framework for insurance. Scheme funding On the question of scheme funding, EIOPA recommends applying a holistic balance sheet approach but that this be subject to further investigation. EIOPA notes that this advice is conditional on the Commission s objective of having common levels of security for retirement benefits. Whether this objective is accepted is a political matter. EIOPA does not consider whether or not Solvency II is the correct starting point for this holistic balance sheet, though it notes that many consultation respondents stated the view that it is not. The advice contains detailed amendments to be made to the Directive to reflect the holistic balance sheet approach. The Commission will now consider EIOPA s advice prior to presenting its proposals for amending the IORP Directive, expected to be published by the end of 2012 (see below). The advice is here. Comment: As noted in Pensions Bulletin 12/03, EIOPA s proposals will, if implemented, cause a huge increase in funding requirements for UK defined benefit schemes. A possible solution might be for member states to enact legislation permitting defined benefit IORPs to transfer their liabilities to the sponsoring employer, and their assets to a security SLAUGHTER AND MAY 5

6 trust, in order to bring such schemes within the exemption for book reserve schemes, and so outside the scope of the IORP Directive. In other words, it becomes possible to have a similar structure to that which is common in Germany, where the pension promise is often a direct promise from the employer to the employee (also known as a book reserve scheme), possibly supported by a support fund ( Unterstutzungskassen ) or by a contractual trust arrangement. European Commission White Paper on pensions This was published on 16th February, 2012 and follows on from the Green Paper (COM (2010) 365) published on 7th July, 2010 (Pensions Bulletin 10/11). The White Paper, entitled An agenda for adequate, safe and sustainable pensions, sets out the current pension challenges (demographic ageing, changes in pensions systems, and the impact of the financial and economic crisis) in the EU and the need for reform. Proposed EU initiatives to address these challenges include: cooperating with member states to assess and optimise the efficiency and cost effectiveness of tax and other incentives for private pension saving, including better targeting of incentives on individuals who would otherwise not build up adequate pensions, a review of good practice with regard to individual pension statements with the aim of encouraging member states to provide better information to individuals for their retirement planning, presenting a legislative proposal to review the IORP Directive to maintain a level playing field with Solvency II and promote more cross-border activity in this field and to help improve overall pension provision in the EU, Comment: There is a misconception that pension funds are competing with insurance companies, and so there needs to be a level playing field. Pension funds are not playing the same game, let alone operating on the same playing field with insurance companies. initiatives to ensure a more effective protection of workers occupational pension rights in the event of insolvency of their employer on the basis of Article 8 of Directive 2008/94/EC (the Insolvency Directive ) 1. 1 Directive 2008/94/EC is a consolidation of Directive 80/987/EEC Comment: In order to comply with the requirements of the Insolvency Directive, the UK Government, in the Pensions Act 2004, established the Pension Protection Fund (for schemes that commenced winding up on or after 6th April 2005), and the Financial Assistance scheme (for schemes that commenced winding up between 1st January, 1997 and 5th April, 2005). In 2007, in Robins v Secretary of State for Work and Pensions (Case C-278/05) the ECJ found that, although Article 8 did not require that accrued pension rights be funded in full on the insolvency of the sponsoring employer, the protection afforded by the Financial Assistance Scheme was incompatible with Article 8. Certain EU member states do not have the equivalent of a pension protection fund. Those EU member states include, we understand, Belgium, Ireland and the Netherlands, development of a code of good practice for occupational pension schemes addressing issues such as better coverage of employees, the pay out phase, risk sharing and mitigation, cost effectiveness and shock absorption, resuming work on a pension portability directive setting minimum standards for the acquisition SLAUGHTER AND MAY 6

7 and preservation of supplementary pension rights, and assessing the case for extending the scope of EU regulations on applicability of the social security systems as regards certain occupational schemes. Responses to the Green Paper consultation are summarised in Annex 2 to the White Paper. Annex 3 summarises basic and supplementary pension provisions in each EU member state together with country specific recommendations and the latest reforms. The White Paper is here. Action point: For noting. Miscellaneous Legal Business Awards 2012 We are delighted to have been awarded Employment, Pensions and Benefits Team of the Year at the Legal Business Awards The award was for Slaughter and May s creation of a solution for Uniq to minimise the shortfall in its defined benefit pension scheme using an innovative deficit for equity swap. It involved creating a completely new structure and clearing it with the pension scheme trustees and Pensions Regulator, as well as ensuring that the Pension Protection Fund would not object. For more information on the Uniq restructuring click here. AEGON longevity swap Slaughter and May advised AEGON on its EUR 12 billion longevity swap with Deutsche Bank, completed in January, The transaction is based on Dutch population data which is applied to a synthetic portfolio and will enable AEGON to hedge liabilities on a portion of its annuity book SLAUGHTER AND MAY 7

8 Appendix PPF Levy: 2012/13 Levy Determination Background On 13th December, 2011 the PPF Board published the final version of the 2012/13 determination which sets out the rules for calculating the PPF levy for 2012/13, the first year of the new levy framework (see below). Alongside the 2012/13 determination, the PPF has also produced the following: an updated levy practice guide. This covers practical issues on how the Board of the PPF will use its discretionary powers in relation to scheme data and deficit-reduction contributions; guidance on the new bespoke stress calculation (applicable to schemes with protected liabilities of 1.5 billion or more see below); updated contingent asset guidance. This is a streamlined version of the 2011/12 guidance and does not contain all the requirements for contingent assets. It must therefore be read in conjunction with the contingent asset appendix of the determination. The guidance does however set out the changes to the contingent asset regime taking effect from 2012/13. It also includes details of the Board of the PPF s exercise of discretion in relation to contingent assets which was last year included in the levy practice guide; updated guidance for calculating and certifying block transfers. The PPF has confirmed that: the levy estimate will be reduced to 550 million from 600 million; the risk-based levy scaling factor will be 0.89; the risk based levy cap will be 0.75% of liabilities; and the scheme-based levy multiplier will be The determination, along with the PPF s consultation response on the 2012/13 levy proposals and the guidance listed above is available from the PPF website ( Key features of the new levy framework The PPF says that the policy behind the new levy framework is to achieve stability and predictability for levy payers. It goes on to say that the key features of the new levy framework are as follows: the levy parameters (i.e. levy scaling factor, scheme based levy multiplier and risk-based levy cap) will, as a general rule, be fixed for 3 years; the levies are to be calculated based on the funding position of the scheme over a 5 year period up to 30th March, 2012, rather than being based on a snapshot of the scheme on the day before the start of the previous levy year, as has been the case to date. Funding levels are to be smoothed using market data for each working day in the 5 year period up to 30th March, 2012; the measurement of underfunding for the purposes of the risk-based levy will incorporate an assessment of investment risk. The PPF will achieve this by applying stresses to the asset and liability values submitted on Exchange. Comment 1: It will therefore be important to check your Scheme s asset breakdown, as reported on Exchange, as this could have a significant impact on the Scheme s levy bill. The PPF is recommending that schemes that SLAUGHTER AND MAY 8

9 are considering reporting substantial allocations to the insurance or other categories should instead consider seeking to record the underlying assets held in a pooled fund, as this could lead to a significant levy reduction. Comment 2: Schemes with protected liabilities of more than 1.5 billion at their most recent section 179 valuation (the Investment Stress Threshold ) must carry out their own bespoke stress calculation as part of the scheme return in accordance with the Investment Risk Appendix of the determination and the guidance on the bespoke stress calculation. Schemes with protected liabilities of less than 1.5 billion can voluntarily submit a bespoke stress calculation and should consider it if they have derivative investments; insolvency risk for the purposes of the risk-based levy will be measured using the average Dun & Bradstreet failure score of each employer over a 12 month period, measured on the last working day of each month, from 28th April, 2011 to 30th March, Employers will then be allocated to one of 10 insolvency bands based on this average failure score, each with an associated levy rate. Comment: Where a Scheme has more than one employer, each employer will be placed in a band and the weighted average of the applicable bands will be assigned to the scheme, there are a number of changes relating to contingent assets. These are set out under the heading Contingent Assets below, and the process for reporting partial block transfers has been removed. As from the 2012/13 levy year, the PPF will only recognise full transfers or previously recognised transfers (i.e. transfers which the Board of the PPF was required to take into account under the terms of a previous levy determination). Deadlines: The 2012/13 levy will be based on the position of the scheme/employer over a period of time up to 30th March, 2012, rather than on a snapshot of the scheme on the day before the start of the pervious levy year (as has been the case to date). The deadlines for the 2012/13 levy therefore look somewhat different from the deadlines for previous levy years. The deadlines for the submission of information and certificates and the calculation dates are summarised below but you should check the Action Plan for further details. PPF Levy 2012/13: Last working day of each month, from 28th April, 2011 to 30th March, 2012 for supplying information to Dun & Bradstreet in order to improve an employer s failure score. 5-year period to 30th March, 2012 Reference period over which funding is smoothed p.m. on Friday 30th March, 2012: for submission of scheme data (including section 179 or MFR valuation and bespoke stress calculation) for use in levy calculations. for putting contingent assets in place (they must come into effect no later than 1st April, 2012); for certifying or re-certifying contingent assets; Saturday 31st March, 2012: for making deficit reduction contributions; for completing full block transfers in or out; SLAUGHTER AND MAY 9

10 5.00 p.m. on Tuesday 10th April, 2012: for submitting deficit reduction certification (where deficit reduction contributions are made before 1st April, 2012); and 5.00 p.m. on Friday 29th June, 2012: for notification of, and certification of, full block transfers (where the full block transfer occurred prior to 1st April, 2012). Date of payment of the 2012/13 Levy: The 2012/13 levy is payable on the earliest of the following dates: 1. the date upon which the person liable to pay a scheme s Levy is sent notification (or a revised notification if applicable) of the amount payable; 2. the date on which any Scheme ceases to be an eligible Scheme for PPF coverage; or 3. 28th March, Interest on late payments: In accordance with legislation, the PPF will charge interest on levy payments that are not received within the 28 day time limit at a daily rate of the Bank of England base rate plus 5%. Note: Base rate as at 28th February, 2012 is 0.5% PPF Levy 2013/14: The provisional deadlines for the 2013/14 Levy are as follows: Last working day of each month, from 30th April, 2012 to 29th March, 2013 for supplying information to Dun & Bradstreet in order to improve an employer s failure score. 5-year period to 29th March, 2013 Reference period over which funding is smoothed p.m. on 29th March, 2013: for submission of scheme data (including section 179 or MFR valuation and bespoke stress calculation) for use in levy calculations. for putting contingent assets in place (they must come into effect no later than 1st April, 2013); for certifying or re-certifying contingent assets; 31st March, 2013: for making deficit reduction contributions; for completing full block transfers in or out; 5.00 p.m. on 10th April, 2013: for submitting deficit reduction certification (where deficit reduction contributions are made before 1st April, 2013); and 5.00 p.m. on 28th June, 2013: for notification of, and certification of, full block transfers (where the full block transfer occurred prior to 1st April, 2013). Note: The above deadlines for the 2013/14 PPF levy are provisional and the final deadlines will be confirmed when the PPF s Determination for 2013/2014 is issued. This is likely to be sometime in December, SLAUGHTER AND MAY 10

11 Transfers: Only a full or a previously recognised block transfer (i.e. a transfer which the Board of the PPF was required to take into account under a previous determination) may serve to reduce a scheme s levy. The PPF is not recognising any new partial transfers for the 2012/13 levy year. A full transfer is one of 100% of liabilities, resulting in the transferring scheme becoming exempt from the levy. The PPF expects notification of full transfers which occur prior to 1st April, Notification of, and certification of, these transfers must be provided to the PPF by 5:00 p.m. on 29th June, The PPF will penalise the receiving scheme if it does not notify the PPF of transfers it expects notification of. However, the PPF has a discretion as regards the extent to which it will penalise a scheme, if at all. This discretion will be exercised if the PPF Board is satisfied that the Trustees of any receiving scheme have made all efforts that were reasonable in the circumstances to submit by 5:00pm on 29th June, 2012 the information the PPF required. Contingent Assets: In order to keep their risk-based levies to a minimum, employers need to start thinking now about possible reduction mechanisms, such as making deficit reduction payments or putting contingent asset arrangements in place. There are three types of contingent assets: Type A: intra group guarantees; Type B: security (in the form of a first priority legal mortgage or fixed charge given by an Employer s Associate in favour of the trustees of the scheme) over: sterling cash; real estate; or securities; and Type C: a letter of credit or bank guarantee in favour of the Scheme trustees. The PPF only recognises contingent asset arrangements that are put in place using its standard form documentation and that are accompanied by a legal opinion and any other necessary supporting documentation, such as a certificate of title for a Type B contingent asset comprising real estate. These are not documents that can easily be produced at the last minute, so early contact with the legal advisers is recommended. The Board has not revised its standard contingent asset agreements for 2012/2013. However, it has made some changes to the requirements for contingent assets. There are three main changes as follows: Relaxation of definition of associate There has been a relaxation of the requirement that the guarantor in relation to a contingent asset is an associate, in strict legal terms, of an employer. Previously, a guarantor had to be an associate of the employer, within the meaning of Section 435 of the Insolvency Act However, for the levy year 2012/13, the definition of employer s associate has been expanded to cover an entity which satisfies the Board of the PPF of a sufficiently strong connection to any employer, independent of the existence of the contingent asset. To fall within this expanded definition of associate, the Board of the PPF must be satisfied both that: SLAUGHTER AND MAY 11

12 (a) the contingent asset was given or paid for because of such an existing relationship between the person and the employer(s); and (b) the person giving or paying for the contingent asset had a genuine and substantial reason for doing so, regardless of any payment or other consideration received by it as a result of doing so. The connection to the employer will need to be certified on Exchange and evidence of the connection must form part of the scheme s paper contingent asset submission (a statement in the legal opinion would be sufficient for these purposes). New certification requirement as to the strength of a Type A guarantor The PPF has introduced a new certification requirement for the 2012/13 Levy Year. Trustees will, for the 2012/13 Levy Year, be required to certify, both in respect of new and existing contingent assets, that they 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. This is a change from the original proposal which required Trustees to certify positively that each guarantor could be expected to meet their full commitment under the contingent asset if called upon to do so as at the date of the certificate The PPF s guidance on contingent assets explains that the certification has been redrafted in negative form to allow Trustees to certify where it is reasonable to believe that the amount being certified could be met by the certified guarantor, without having to obtain absolute certainty as to the ability of the guarantor to do so. It further explains that Whilst Trustees should remain mindful of their responsibilities not to provide materially false or misleading information, the certification (in particular given that this is the first year of the new requirements) is deliberately aimed at ensuring that trustees can certify unless there are clear grounds not to. The guidance sets out the considerations that Trustees should take into account when deciding whether or not they can give this new certification. It explains that the Board of the PPF does not generally expect Trustees to undertake a covenant review on the guarantor (although the Trustees may decide that such a review is appropriate in the circumstances). It does, however, expect that Trustees should have taken proportionate and reasonable steps to reassure themselves as to whether the guarantor has sufficient value as a business. The guidance notes that the Board of the PPF will still be carrying out its own investigations as to guarantor strength and that the fact that trustees feel able to provide the certification does not mean that the contingent asset will automatically be accepted. The PPF s assessment as to guarantor strength will be based on a comparison of publicly available financial information against the value of the contingent asset for levy purposes. The PPF comments that as this is the first year of this assessment, it will give the benefit of any doubt to schemes and their guarantors. The PPF will review the impact of its new measures to take account of guarantor strength after their first year of application, but expects the requirements to be tightened for future years. Note that the contingent asset certificate has also been altered for the 2012/13 Levy Year to allow Trustees to certify a lower amount than the face value of the contingent asset, or to report only the most substantial guarantor, if they do not feel that they can otherwise provide the new certification regarding the guarantor s strength. SLAUGHTER AND MAY 12

13 Changes to the manner of recognition of contingent assets for multi-employer schemes For the levy year 2012/13, where a type A contingent asset is provided for a multi-employer scheme, the levy rate of the guarantor will only be substituted for those employers which have a higher levy rate. If any employers have a lower levy rate (i.e have a lower insolvency risk) than the guarantor, they will be able to carry this through to the calculation of the scheme s insolvency risk. You will need to check whether you can rely on an existing contingent asset agreement, especially in the light of the new certification for new Type A guarantors, as, if not, you will need to put a new contingent asset agreement into place before 1st April, The submission of contingent asset certificates will be via the Pension Regulator s scheme maintenance system, Exchange. However, hard copies of the supporting documents, including a print out of the contingent asset certificate, must be submitted to the PPF. The PPF Board will continue to recognise contingent asset arrangements put in place for previous levy years provided trustees re-certify these before 5.00pm on 30th March, 2012, confirming that the arrangement will remain in place for 2012/2013. Further guidance is available in the contingent assets annex of the determination and in the PPF s guidance on contingent assets, republished in December, 2011 ( We have advised a number of clients in relation to putting in place contingent asset arrangements, including providing the necessary legal opinion. Please contact the usual person you deal with at Slaughter and May for further information or advice. If you are putting in place a contingent asset you will need a legal opinion. The deadline is only 30 days away so you will need to act quickly. Slaughter and May (PFJB/PGE) 29th February, 2012 SLAUGHTER AND MAY 13

14 Pension Protection Fund Levies ( PPF Levies ) 2012/13 And 2013/14 ACTION PLAN No. Requirement Calculation date/ Information submission date Action points/comments Part A Preliminary matters to consider 1. Section 179 valuation 1 Liaise with Scheme Actuary over appropriate date (see B1. and C1. below). 2. Each employer s current Dun & Bradstreet ( D&B ) failure score 2 Consider how to improve this, if necessary (see B2. and C2. below). 3. Data held by Regulator 3 Check online system to ensure data is accurate and up to date (see B3. and C3. below). 4. Transfers 4 Ensure relevant conditions are met, and relevant information provided to the PPF to ensure transfers in or out are taken account of (see B5. and C5. below). 5. What steps could be taken to improve funding position (e.g. putting in place contingent assets, making deficit reduction payment (see B4. B6. C4. and C6. below)), Note: Liabilities in respect of money purchase benefits, and the assets supporting such benefits, are disregarded for Section 179 valuation purposes. SLAUGHTER AND MAY 14

15 No. Requirement Calculation date/ Information submission date Action points/comments 6. In the case of a multi-employer scheme (i.e. a scheme with 2 or more employers) consider the correct categorisation of the scheme (see further B3 and C3 below) Part B 2012/13 PPF Levy 1. Section 179 Valuation at any date other than 31st March, 2012 is altered by PPF Board to roll forward/roll back figures. Figures smoothed using market data for each working day over 5 year period to 30th March, D&B Failure scores of each employer (and guarantor used for a Type A contingent asset (see B4. below)). As at Saturday 31st March, 2012, (but smoothed over 5 year period). Must be submitted by Friday 30th March, pm Last working day of each month, from 28th April, 2011 to 30th March, Information submitted to D&B between now and 30th March, 2012 will not affect Failure Score to be used in calculating 2012/2013 levy since information submitted to D&B by month end will only be reflected in Failure Score by following month end. Check average D&B failure score. If not satisfied investigate how it has been calculated and whether there are any grounds to appeal. Can appeal average D&B failure score within 28 days of receipt of 2012/13 PPF levy invoice. Comment: grounds of appeal can be limited. If you think this may apply to your scheme, please contact the person you normally deal with here on pension matters for further advice. SLAUGHTER AND MAY 15

16 No. Requirement Calculation date/ Information submission date Action points/comments 3. Check data held in relation to the scheme on the Pension Regulator s Exchange system (scheme return). Friday 30th March, 2012, 5pm 3.1 Ensure data submitted by 5pm, 30th March PPF will in very limited cases take account of data submitted after 5pm, 30th March For multi-employer scheme, check which category applies for PPF purposes. Section 4 of the Scheme Return requires multi-employer schemes to select a structure that best describes their scheme. The type of structure selected will affect the risk profile of the scheme. There are particular problems in categorising schemes where, on cessation of a participating employer, the trustee is obliged to segregate if the principal employer so directs. We have been corresponding with the Pensions Regulator on the appropriate categorisation. Comment: If you think this may apply to your scheme, please contact the person you normally deal with here on pensions matters for further advice. SLAUGHTER AND MAY 16

17 No. Requirement Calculation date/ Information submission date Action points/comments 3.4 Please check carefully that the correct employer information has been submitted. Note 1: This could materially affect the amount of your levy. Note 2: If a company no longer employs active members it may or may not still count as an employer. Comment: If you think this may apply to your scheme, please contact the person you normally deal with here on pensions matters for further advice. 3.5 Please check carefully that the correct asset information has been submitted, as the PPF will be using this information in its calculation of underfunding for the purposes of the risk based levy. Note 1: Consider recording underlying assets held in pooled funds rather than allocating assets to the insurance or other categories, as this could lead to a significant levy reduction. Note 2: If your scheme has protected liabilities of more than 1.5 billion, you must carry out bespoke stress calculations and submit as part of scheme return. SLAUGHTER AND MAY 17

18 No. Requirement Calculation date/ Information submission date Action points/comments 4. If using contingent assets, re-certify existing contingent asset or put new contingent assets in place and submit, via Pensions Regulator s Exchange System, contingent assets certificate. Accompanying supporting documents for new Contingent Assets must be sent in by same deadline. Note: PPF no longer contacts schemes about re-certification of existing contingent assets. Re-certification will be via Pensions Regulator s Exchange system. Note: PPF standard agreements issued December 2009 are unchanged for 2012/2013. Note: Trustees certifying new and existing contingent assets will, for the first time, need to make a certification in respect of the guarantor s financial strength. Trustees will need to take specific advice as to whether such certification can be given. Friday 30th March, 2012, 5 pm 4.1 There are 3 types of contingent asset: parent group company guarantees (Type A), security over cash, real estate or securities (Type B), and letters of credit and bank guarantees (Type C). 4.2 The PPF Board only recognises contingent asset arrangements: that are put in place using its standard form documentation, that are accompanied by a legal opinion, in relation to Type B and C contingent assets, that are accompanied by a valuation of the asset(s), and in relation to Type B contingent assets comprising real estate, that are accompanied by a certificate of title. Note: We are able to provide the necessary legal opinion where the law of England and Wales is applicable. Alternatively, where, for example, a non-uk guarantor is involved, we can liaise with overseas lawyers on the necessary opinion. SLAUGHTER AND MAY 18

19 No. Requirement Calculation date/ Information submission date Action points/comments 4.3 Any decision by an employer to offer a contingent asset needs to be considered carefully: savings on the levy may be outweighed by a trustee with a PPF guarantee ratcheting up its funding demands. Comment: An alternative approach is to make any parent company guarantee conditional on: the trustee following an appropriate investment strategy acceptable to the guarantor, and the trustee agreeing not to exercise any powers available to it under the trust deed which would accelerate the funding of the scheme over and above that provided for in the schedule of contributions from time to time in force under the Pensions Act Note that such a guarantee would not qualify as a PPF contingent asset. 4.4 Further guidance is available in the PPF s guidance on contingent assets, republished in December, 2011 ( SLAUGHTER AND MAY 19

20 No. Requirement Calculation date/ Information submission date Action points/comments 5. Full transfers which are not reflected in the most recent section 179 valuation Last date for making deficit reduction contributions which count for levy calculation purposes (they must be made in full). 7. Start of financial year for 2012/13 PPF levy Saturday 31st March, 2012 Saturday 31st March, 2012 Sunday 1st April, 2012 Relevant conditions are that: prior to 1st April 2012 all members, or all but one member, transfer to one or more schemes, and by 5 pm on 29th June, 2012 both transferring and receiving scheme: notify the PPF via Exchange, and send actuarial transfer information to the PPF via Exchange. Note: If above information is not provided PPF might decide to penalise schemes when calculating PPF levy. Must submit Deficit-Reduction certificate by 10th April, 2012, 5pm 1 Note that money purchase liabilities and the assets supporting them are disregarded for Section 179 valuation purposes. SLAUGHTER AND MAY 20

21 No. Requirement Calculation date/ Information submission date Action points/comments 8. Deficit reduction contributions deadline for sending to PPF Actuary s certificate in relation to deficit reduction contribution(s) (provided contribution(s) made by end of 31st March, 2012); 9. Full transfers that took place on or before 31st March, 2012 deadline for notifying PPF and for providing actuarial transfer information. 10. Last day of financial year for 2012/13 PPF levies. Tuesday 10th April, 2012, 5 pm Friday 29th June, 2012, 5 pm Saturday 31st March, 2013 See B6. above See B5. above. Names and pension scheme reference numbers of transferring and receiving schemes required. Part C 2013/14 PPF Levy Note: Dates below are provisional as the final rules for 2013/14 PPF Levy will not be known until PPF s Determination is issued sometime in December Section 179 Valuation at any date other than 31st March, 2013 is altered by PPF Board to roll forward/roll back figures. Figures smoothed using market data for each working day over 5 year period to 30th March, As at 31st March, 2013, (but smoothed over 5 year period). Must be submitted by 29th March, 2013 SLAUGHTER AND MAY 21

22 No. Requirement Calculation date/ Information submission date Action points/comments 2. D&B Failure scores of each employer (and guarantor used for a Type A contingent asset (see C4. below)). Last working day of each month from 30th April, 2012 to 29th March, PPF to use average of monthly D&B Failure scores over 1 year period to 29th March, Check D&B failure score and investigate options for improving it. Submit any relevant information to D&B. Information submitted to D&B by each month end will be reflected in Failure Score by following month end at latest. Can appeal D&B failure score within 28 days of receipt of 2013/14 PPF levy invoice. Comment: grounds of appeal can be limited. If you think this may apply to your scheme, please contact the person you normally deal with here on pension matters for further advice. 3. Check/change data held in relation to the scheme on the Pension Regulator s Exchange system (scheme return). 29th March, 2013, 5pm 3.1 Ensure data submitted by 5pm, 29th March PPF will in very limited cases take account of data submitted after 5pm, 29th March For multi-employer scheme, check which category applies for PPF purposes. Section 4 of the Scheme Return requires multi-employer schemes to select a structure that best describes their scheme. The type of structure selected will affect the risk profile of the scheme. SLAUGHTER AND MAY 22

23 No. Requirement Calculation date/ Information submission date Action points/comments There are particular problems in categorising schemes where, on cessation of a participating employer, the trustee is obliged to segregate if the principal employer so directs. We have been corresponding with the Pensions Regulator on the appropriate categorisation. Comment: If you think this may apply to your scheme, please contact the person you normally deal with here on pensions matters for further advice. 3.4 Please check carefully that the correct employer information has been submitted. Note 1: This could materially affect the amount of your levy. Note 2: If a company no longer employs active members it may or may not still count as an employer. Comment: If you think this may apply to your scheme, please contact the person you normally deal with here on pensions matters for further advice. 3.5 Please check carefully that the correct asset information has been submitted, as the PPF will be using this information in its calculation of underfunding for the purposes of the risk based levy. Note 1: Consider recording underlying assets held in pooled funds rather than allocating assets to the insurance or other categories, as this could lead to a significant levy reduction. Note 2: If your scheme has protected liabilities of more than 1.5 billion, must carry out bespoke stress calculations and submit as part of scheme return. SLAUGHTER AND MAY 23

24 No. Requirement Calculation date/ Information submission date Action points/comments 4. If using contingent assets, re-certify existing contingent asset or put new contingent assets in place and submit, via Pensions Regulator s Exchange System, contingent assets certificate. Accompanying supporting documents for new Contingent Assets must be sent in by same deadline. 5. Full transfers which are not reflected in the most recent section 179 valuation Last date for making deficit reduction contributions which count for levy calculation purposes (they must be made in full). 29th March, st March, st March, 2013 See comments in B4. above. Relevant conditions are that: Prior to 1st April 2013 all members, or all but one member, transfer to one or more schemes, and by 5 pm on 28th June, 2013 both transferring and receiving scheme: notify the PPF via Exchange, and send actuarial transfer information to the PPF via Exchange. Note: If above information is not provided PPF might decide to penalise schemes when calculating PPF levy. Must submit Deficit-Reduction certificate by 10th April, 2013, 5pm 2 Note that money purchase liabilities and the assets supporting them are disregarded for Section 179 valuation purposes. SLAUGHTER AND MAY 24

25 No. Requirement Calculation date/ Information submission date Action points/comments 7. First day of financial year for 2013/14 PPF levies 8. Deficit reduction contributions deadline for sending certificate 9. Full transfers that took place on or before 31st March, 2013 deadline for notifying PPF and for providing actuarial transfer information. 10. Last day of financial year for 2013/14 PPF levies. 1st April, th April, 2013, 5pm 28th June, 2013, 5 pm 31st March 2014 See C6. above. See C5. above. Note: PPF levies will not be payable until invoice sent to scheme. Note: No faxes accepted by the PPF only post or deliveries by hand. Note: Certificates must be submitted via the Pensions Regulator s Exchange system. Note: The PPF will charge interest on levy payments that are not received within the 28 day time limit at a daily rate of the Bank of England base rate plus 5%. Base rate as at 28th February, 2012 was 0.5%. Slaughter and May (PFJB/PGE) 29th February, 2012 This table is intended to give general information only. It does not seek to give legal advice or to be an exhaustive statement of the law and readers should take specific legal advice on any particular matter which concerns them SLAUGHTER AND MAY 25