9 July 2020
- Experian finalises its last PPF insolvency scores
- Corporate Insolvency and Governance Act – creditor rights given to the PPF
- Annual Funding Statement Analysis illustrates the deficit repair contribution challenge
- DB dominance revealed
- Pensions dashboard – data call for input formally launched
- Covid-19 pension-related announcements
The last Experian PPF insolvency scores that will be used in the 2020/21 PPF levy calculation (to be invoiced in autumn 2020) have now been finalised. Pension schemes and their sponsoring employers can now confirm on the Experian portal that the Levy Band equating to the average of the insolvency scores (the “Mean Score”) over the year to 31 March 2020 is as expected.
This will be the last year that Experian provides PPF insolvency scores, with Dun & Bradstreet (“D&B”) taking over from the 2021/22 PPF levy season onwards. Pension schemes and their sponsors can access their new insolvency scores on the D&B portal.
With the Experian scores now finalised, sponsoring employers that have seen a pre-tax profit turn into a loss as a result of recognising an identifiable GMP equalisation adjustment in their accounts now have less than four weeks to request a change to their Mean Score. This only applies where the Mean Score has worsened due to the equalisation adjustment.
The PPF has also published two pieces of information to help with the upcoming invoicing season:
- Electronic levy invoices – the PPF will send an electronic copy of the 2020/21 PPF levy invoice to the “scheme contact” address listed on Exchange. To stop receiving paper copies of the invoice in addition, a trustee or authorised scheme manager will need to complete an online consent form
- Levy payment assistance – a new option gives PPF levy payers who are struggling to pay due to coronavirus the possibility of having 90 days to pay without incurring interest. There is also a reminder that a payment plan may be available to spread the cost of the levy
Schemes and sponsoring employers should now be checking their Experian Mean Scores are as expected, to prevent any nasty shocks in the autumn. It’s also a good time to check the new D&B scores if you haven’t already done so – acting now maximises your chances of being able to reduce future levies.
Hot on the heels of Royal Assent last week of the Corporate Insolvency and Governance Act (see Pensions Bulletin 2020/27) regulations have been made enabling the Pension Protection Fund to participate in discussions amongst creditors when either a moratorium is taking place or a restructuring plan is being proposed.
The Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) Regulations 2020 (SI 2020/693) have been made under last minute Government amendments to the now Act and came into force on 7 July 2020. They secure creditor rights for the PPF (that would otherwise be exercised by the DB scheme’s trustees) in order to safeguard its interests in these two situations.
The regulations have been necessary because neither situation constitutes a qualifying insolvency event that would lead to PPF involvement through provisions made under the Pensions Act 2004. The regulations have been rushed through because of concern that the PPF would otherwise have been neutered in these new situations developing in the weeks and months following Royal Assent.
In particular the regulations provide that:
- During any period in which a moratorium is in force, in specified circumstances, the creditors’ rights of the scheme trustees are to be exercised by the PPF instead. Before exercising those rights, the PPF must consult the scheme trustees
- In specified circumstances, when a restructuring plan is proposed, for the PPF and scheme trustees to exercise certain rights, which include, the right to make applications to the Court and to participate in meetings ordered by the Court
- The PPF can exercise voting rights to the exclusion of the scheme trustees, subject to the PPF consulting the trustees before voting
These are a vital follow-on to the pension clauses added late in the day to the Bill and should go some way to ensuring that the PPF has the same influence when an employer is in such financial difficulty that restructuring conversations are inevitably starting via these new mechanisms as it currently has when a PPF-qualifying insolvency event occurs.
The likely impact of Covid-19 related market falls earlier this year is laid bare in the Regulator’s analysis of the expected positions of “tranche 15” DB pension schemes that informed its Annual Funding Statement issued on 30 April (see Pensions Bulletin 2020/19).
“Annual funding statement analysis 2020” published on 30 June shows that for a scheme whose valuation fell due on 31 December 2019 the position at that point could well have been one of good progress since that undertaken three years prior, with the current recovery plan on track to remove the deficit by its end date. By contrast, for a valuation falling due on 31 March 2020 the position could well have been the complete opposite.
The Regulator’s modelling suggests that if all tranche 15 valuations had 31 March 2020 valuation dates, in order to retain their recovery plan end date (or for those schemes nearing the end of their recovery plan period a modest increase in the remaining recovery plan length to bring it to three years) the median required increase in deficit repair contributions would be around 50% to 75%, with 20% of schemes needing to increase their deficit repair contributions to more than three times their current level. This analysis does not take into account whether the current level of deficit repair contributions remains affordable nor does it consider what level of contributions is affordable.
The Regulator notes that the position for individual schemes will vary greatly compared to its aggregate estimates, depending on such matters as scheme-specific inter-valuation experience, valuation dates, funding assumptions and investment strategies.
This brief analysis is noteworthy because this quantification of the deficit repair contribution challenge was largely absent from the annual funding statement itself. And for a number of schemes deficit repair contribution holidays will have been taken since March, adding to the challenge.
The dominance of defined benefit provision is revealed in a new Financial Survey of Pension Schemes, published on 29 June by the Office for National Statistics.
Although the membership of DC occupational pension schemes exceeded that of DB and hybrid schemes (22.4 million versus 18.3 million at the end of 2019), the assets (excluding derivatives) held by private sector DC occupational pension schemes were dwarfed by those held by their DB and hybrid counterparts (£146 billion versus £1,859 billion at the end of 2019).
The survey also reveals that in the last quarter of 2019, whilst nearly two-thirds of employee contributions were to DC schemes, over 70% of employer contributions were to DB and hybrid schemes, of which 60% of private sector DB and hybrid employer contributions were in respect of deficit recovery.
The survey, which is undertaken quarterly, has been running since April 2019, but it is only now that the ONS has been satisfied that the results from the three quarters from April to December 2019 are of good quality and so can start to publish its findings. It is not clear how future quarterly surveys will be published.
The survey results provide a wealth of financial information on occupational pension schemes, of which the above it just an extract. We look forward to hearing more from the ONS in due course.
On 6 July the Money & Pensions Service formally launched its call for input on the data scope and data definitions working papers which were published in April (see Pensions Bulletin 2020/16). Answers are requested via an online survey, the submission deadline for which is 31 August 2020.
To accompany the launch Guy Opperman MP has published a blog that boosts the dashboard concept and makes clear the importance of getting the associated data standards right and the data ready as soon as possible.
It is heartening to see this progress being made towards delivery of the dashboard, following the previous long period of little tangible progress. It will be interesting to see what responses Mr Opperman receives to the letters he has written to “a number of large schemes” in a bid to assess their readiness.
Since last week’s Pensions Bulletin, announcements and posts influenced by the Covid-19 health emergency in the world of pensions include the following:
- On 30 June the Pensions Regulator further expanded its “DC scheme management and investment” guidance on its Covid-19 microsite. Significantly the Regulator has rewritten the section about whether temporary closures (“gating”) of property funds results in new default arrangements being created. The previous version of the guidance (see Pensions Bulletin 2020/22) had already made clear the Regulator’s view that diverting contributions away from a gated fund was likely to make the temporary destination a new default arrangement – with the additional governance requirements that would entail. But helpfully the updated guidance implies that in most circumstances, depending on what communications have been sent to members, redirecting contributions back to the original fund when it is “ungated” will not cause that fund itself to become a default arrangement
- On 2 July the Pensions Regulator adjusted its “Update about TPR activities during COVID-19” web page, mainly to indicate that those schemes in relationship supervision are being contacted again to be told how the Regulator intends to engage with them in the short term. The Regulator intends to return to a “full evaluation cycle” for such schemes later in the year
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.