Revised guidance in relation to contingent assets for 2015/2016
By Brian Stewart, Associate Director
The Pension Protection Fund recognises certain types of contingent assets in its calculation of the PPF levy, including guarantees given by related companies which are known as ‘Type A contingent assets’.
Some recent important changes resulting from the PPF’s recent determination regarding the 2015/16 levy are as follows:
- Trustees now need to give a more robust certificate regarding the Guarantor’s ability to honour the guarantee. The certificate is now required to be in positive terms (unlike prior years) and requires the trustees to certify a fixed cash sum (‘the realisable recovery’).
- Broadly speaking the amount which should be certified is the lower of:
(a) any cap defined by reference to a fixed amount in the guarantee; and
(b) the amount which the trustees are reasonably satisfied that the guarantor could meet, if called upon.
- The certified realisable amount can be lower than the amount covered by the guarantee, enabling trustees to change the realisable amount each year without having to formally amend the terms of the guarantee.
- The trustees must also take account of the likely impact of the immediate insolvency of all the employers, other than the guarantor where that guarantor is also an employer. Trustees should not place value on a guarantor’s investments in the scheme employer unless they are confident that value would survive employer insolvency. Careful consideration is required to assess the impact of employer insolvency on the guarantor, as the value of the guarantor could be impacted by numerous factors.
- While the PPF recognises that trustees are not specifically required to obtain a full covenant assessment of the guarantor, a detailed review, in some form will often likely be necessary.
We believe that Trustees and employers should now be considering these issues to ensure compliance with the PPF’s deadline of 31 March 2015. Our pension advisory team are experienced Chartered Accountants who have provided covenant assessments and contingent asset certifications to a significant number of schemes and we are happy to explore the updated requirements in more detail with you. Please feel free to contact us on 02033 977 755 or email us at info@rossboyd.co.uk to discuss further.