PPF breaks silence on schemes mistakenly benefiting from last man standing discounts

The PPF has announced plans to re-invoice schemes which mistakenly claimed the last man standing discount on their PPF levy in previous years. These additional invoices could be substantial.

Background

Last year the Pension Protection Fund (PPF) introduced a requirement that, for a scheme to benefit from the last man standing (LMS) discount on its PPF levy, the trustees must have confirmed by 29 May 2015 that they had received legal advice that their scheme is a LMS scheme.

At the time, the PPF was silent on what they would do in relation to trustees of schemes that had previously held their scheme out as being a LMS scheme, but who:

• notified the PPF by 29 May 2015 that they had received legal advice confirming their scheme was not a LMS scheme (Scenario 1);
• received legal advice that their scheme was not a LMS scheme and did not then notify the PPF of this by 29 May 2015 (Scenario 2); or
• did not obtain the required legal advice at all (Scenario 3).

However, the PPF has now broken this silence and confirmed that it will be writing to those trustees in Scenario 1 to re-invoice them for the amount of the discounts received in error in previous years.

Additionally, the PPF has given those trustees in Scenarios 2 and 3 another opportunity to notify it as part of this year’s scheme return that they have received legal advice confirming their LMS status.

Comment

The PPF commented that re-invoicing these schemes was an action which it “must take out of fairness to all levy payers.”

What is not clear from the statement is how far back the PPF will go. For instance, will the PPF seek to re-invoice schemes for a period going back several years, perhaps even as far back as when it was established in April 2005? Or will it limit any re-invoicing to a much shorter period? Additionally, what evidence could trustees provide in order to show that there was a change in their scheme’s structure in the intervening period which caused it to fall outside of the PPF’s definition of LMS? Furthermore, will trustees be able to reduce the amount they are required to re-pay on the basis of affordability concerns?

In terms of the quantum of any re-invoiced levy, it is impossible to give an exact figure. With that caveat in mind; as the PPF had, prior to last year’s levy, applied approximately a 10% discount to levies for LMS schemes, trustees could use that to get an indication of the likely amount that will become payable for each year subject to a re-invoiced levy. Professional financial advice should be taken by trustees who want more certainty about the potential additional levy cost.

Next steps

For schemes which have previously received the LMS discount but are not in fact a LMS scheme, we have set out the next steps which you will need to take in response to the PPF’s statement:

• Scenario 1 – Await the PPF letter regarding re-invoicing and discuss / prepare a response with your legal adviser.
• Scenario 2 – Notify the PPF that the scheme is not a LMS on this year’s scheme return and then await contact from the PPF regarding re-invoicing (and discuss / prepare a response with your legal adviser).
• Scenario 3 – Obtain legal advice and notify the PPF whether the scheme is a LMS scheme on this year’s scheme return.

Consultation

The PPF is consulting on changes to the PPF levy rules for next year. The consultation document can be accessed here. The consultation ends on 22 October 2015 and the PPF plans to publish its response to the consultation before the end of the year.

In order to maintain stability, the PPF has proposed minimal changes to the PPF levy rules for next year. The majority of these changes relate to simplifying practical issues with the recertification of excluded mortgages and asset backed contribution arrangements.