Guarantor strength reports for Type A Contingent Assets Certification
Deadline: 31 March 2018 (latest)
Do you need to obtain a 'guarantor strength report'?
The Pension Protection Fund (PPF) has finalised its guidance for the purposes of the 2018/19 levy.
For a pension scheme to benefit from levy savings as a result of its contingent asset, Trustees are still required to certify the Realisable Recovery – a fixed sum that the Trustees are reasonably satisfied the guarantor can meet, having taken account of the likely impact of the immediate insolvency of the employer.
The certification wording has not changed particularly – so what has changed?
- Where the certification will lead to a levy saving of £100,000 or more, it must be supported by a 'guarantor strength report' on submission. This must be undertaken by a covenant adviser. If it is consistent with the PPF guidance and the certification is done before the deadline, the 'risk reduction test' is deemed to be met.
- The covenant adviser is required to provide a duty of care to PPF. The PPF guidance is detailed and the covenant adviser will require interaction with, and input from, the guarantor. Acting early is key.
- Schemes where levy savings may be below the £100,000 threshold may also voluntarily obtain a 'guarantor strength report' to provide certainty of levy savings.
- Schemes where the £100,000 threshold may be 'borderline' should note PPF is under no obligation to allow Trustees to provide further information after the event. If in doubt, Trustees may wish to consider getting a 'guarantor strength report'.
- Schemes beneath the £100,000 threshold can obtain (as before) a report from a covenant adviser to assist them in the certification process. This will not require the covenant adviser to provide a duty of care to the PPF or need to be submitted on exchange.
- Where there are multiple guarantors, it is no longer necessary for each individual guarantor to be able to meet the Realisable Recovery in full. It is now acceptable for guarantors to certify an individual Realisable Recovery with the aggregate Realisable Recovery being certified for levy savings purposes.