Sponsoring Employers and Trustees of defined benefit (DB) pension schemes may need to act quickly to get new forms of Pension Protection Fund (PPF) contingent asset agreements in place by 29 March 2019.
The PPF is the lifeboat scheme set up to support members of DB pension schemes whose employers become insolvent. The levy that DB schemes pay to fund the PPF can be mitigated by the use of contingent assets (guarantees, charges and letters of credit) which have to be in the PPF required form.
The PPF published new forms of contingent asset agreements in January 2018. For contingent asset agreements entered into or re-executed on or after 18 January 2018, the new standard forms had to be used. Existing agreements for contingent assets entered into before that date could still be re-certified as usual in the last PPF levy year 2018/19.
However, the 2019/20 levy rules confirm that to receive levy benefit for the 2019/20 levy year, Type A (guarantees from parent companies or other group companies) contingent assets and Type B (security over cash, UK real estate or securities) contingent assets that include a fixed cap will have to be re-executed using the new forms of contingent asset agreements.
The new standard forms for Type A and Type B contingent assets are generally very similar to the previous forms although the provisions where there is a fixed cap on liability have changed quite significantly. For example, fixed caps for parental guarantees and charges may need to be split into a pre-insolvency cap and a post-insolvency cap with the post-insolvency cap being used for the PPF levy calculation. There are other changes for example in relation to the amendment and release criteria.
We would recommend that Employers and Trustees consider now what actions they will need to take in order to re-certify (and certify new) contingent assets before the deadline of 29 March 2019.
Please contact Clyde & Co's pensions team for more information.