Levy estimate falls despite record year of claims

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The PPF has released its 2019/20 PPF levy consultation, setting out its plans for calculating the levy to be invoiced in autumn 2019. PPF levy payers will welcome the PPF’s proposal to make limited changes to the levy rules this year, and will be pleased to hear that the PPF is expecting to collect a lower amount in 2019/20.

Despite 2017/18 being a record year of claims (with a number of high-profile companies seeking PPF protection), the PPF is confident that its financial strength remains robust, and it is still aiming for a position of self-sufficiency in 2030. As a result, the PPF proposes not to change its levy calculation method for 2019/20, and expects to collect around £500 million in levies from qualifying schemes (a reduction of nearly 10% compared the estimated amount collected last year of £550 million).

The reduction in the total levy estimate reflects the PPF’s expectation that schemes’ funding positions and insolvency scores will improve modestly over 2019/20. The PPF has noted, however, that if claims remain at a high level, then the levy calculation may need careful thought next year.

Whilst the average levy is down, individual schemes’ levies can change drastically from year to year due to changing circumstances (for example, a new set of company accounts being viewed less favourably by the PPF).  Trustees and employers should therefore be vigilant and take advice on the expected 2019/20 levy for their scheme.

DB consolidation was one of the main themes of the Government’s recent White Paper. A number of DB consolidation vehicles have been established within the current regulatory environment, so the PPF has set out is plans for charging a levy to these arrangements.

The PPF is proposing to structure the levy calculation in a similar way to the levy that it charges schemes without a substantive sponsor, but with adjustments made to reflect the unique nature of these arrangements. For example, the PPF is proposing to build into the levy calculation the potential impact of profit extraction and new business being written during the levy year.

In terms of the other issues raised in the consultation, the PPF reminded schemes with contingent assets (e.g. group guarantees) subject to a fixed cap that they need to re-execute their guarantee before 31 March 2019 on the PPF’s new standard form in order to benefit from a levy reduction. These arrangements are often financially significant in terms of levy reduction, so we would strongly recommend that action is taken sooner rather than later.