With the 31 March 2023 deadline for certification or recertification of contingent assets fast approaching, trustees should seek advice from their scheme actuary to find out what their anticipated risk-based levy is likely to be in 2023 under the new PPF Levy Rules – assuming with and without submission of the contingent asset/s. In both scenarios the risk-based levy should be lower but do the costs associated with submission of such contingent assets outweigh the savings?

The PPF had healthy reserves of £11.7bn as at March 2022, so, whilst expecting the levy estimate to fall, they wanted to have a simpler and more sustainable methodology for determining the levy for levy payers whilst retaining an ability for the PPF to raise the levy again if that were needed. This meant streamlining the methodology: moving away from considering the different circumstances of individual schemes and employers, focusing less on insolvency and more on underfunding, and considering the size of schemes when determining the levy.

The PPF consulted with the pensions industry on their proposals to achieve these aims in the autumn of 2022 and these proposals were generally well received. Following this support, the PPF published their Policy Statement and the new Levy Rules in December 2022.

As a result of these new Levy Rules, the PPF has confirmed that the levy estimate for this coming year (2023/24) is £200m which is a significant reduction from the levy estimate for the year 2022/23 of £390m. This almost 50% reduction in the levy estimate since last year will have a significant impact on the risk-based levy schemes will pay this year; 98% of schemes are expected to pay less in levies, and for schemes who pay risk-based levies that reduction is anticipated to be over 50%.

This reduction will be welcomed by trustees (and employers) who pay the PPF levies, and means that consideration needs to be given now to schemes who have previously used contingent assets to reduce the risk-based element of the PPF levy.

If contingent assets are to be taken into account when determining the risk-based levies for the scheme they need to be submitted to the PPF by 31 March in the relevant scheme levy year. Over time the PPF has required supporting information to be submitted alongside these contingent assets and so there can be significant costs associated with submission, such as full property valuations or covenant reports on a prescribed basis.

For some trustees recertification of these contingent assets will still be the way forward this year because, for instance, there is no need for a full property valuation. However, where costs will need to be incurred to submit the contingent assets, trustees should seek advice from their scheme actuary on whether the costs of recertification could outweigh any potential levy savings over and above the anticipated reduction in the risk based levy under the new PPF Levy Rules.