Section 179 FAQs

Cymraeg

Section 179 FAQs - 2008/2009

Many of the previous Section 179 FAQs are now incorporated in our current Section 179 Guidance - Section 179 Guidance in April 2007. Please refer to that document for further information. Future questions asked of the PPF in relation to Section 179 Valuations will be posted on this page.

When will the new s179 assumptions come into force?
The new assumptions (version A4) are to be used for s179 valuations with an effective date on or after 31 March 2008.

What assumptions do I use if my s179 valuation has an effective date on or before 30 March 2008?
If your valuation has an effective date on or before 30 March 2008 you should continue to use the previous assumptions.

The PPF assumptions guidance derives the discount rates from yields taken from the “FTSE Actuaries’ Government Securities” series of indices. Are these the same as the “FTSE UK Gilts” indices as printed in the Financial Times? (added 23/5/2008)
Yes, these are the same indices. These indices are part of the FTSE family of indices, and are formally known as the “FTSE Actuaries Bond Indices for British Government Securities”. They are currently printed in the Financial Times under the heading “FTSE UK Gilts”, and are listed on the Institute and Faculty of Actuaries’ website under the same name.

In your section 143 / 179 assumptions guidance you stipulate that the PCMA00 and PCFA00 tables should be used for mortality before retirement. Is this appropriate given that below age 50 the mortality rates in these tables relate primarily to the experience of ill-health pensioners? Should not PNMA00 and PNFA00 be used instead? (added 27/5/2008)
In our view the Combined (C) tables somewhat overstate the mortality of pension scheme members before retirement and the “at or over Normal Retirement age” (N) tables would somewhat understate it, partly owing to the fact that below age 65 the rates in the N tables are derived by blending the graduation into the assured lives table. Our analysis indicates that there is little difference (usually less than 1% in the overall funding level) between using the C tables and the N tables in deferment. We have come down in favour of the C tables rather than the N tables because the C tables would give the lower s143 liabilities figure, and one of the principles underlying the selection of the section 143 assumptions is erring on the side of understating the liabilities in circumstances where there is a range of possible answers for a scheme. The effect of this principle is that schemes whose section 143 valuation funding level is close to 100% have a slightly greater chance of being able to test the buy-out market to see if they can buy out better than PPF levels of benefits.

Your section 143/179 assumptions guidance sets out that the PCMA00 and PCFA00 mortality tables should be used in deferment. These tables derive from the CMI’s Working Paper 22 (WP22) and these started at age 50. These tables were subsequently extended to ages beneath 50 in WP26, although this paper was not formally adopted by the profession. Please could you confirm that it is the extension shown in WP26 that you intend to be used? (added 27/5/2008)
Yes, the mortality rates shown in WP26 should be used beneath age 50.

Questions about submitting the valuation

When was the statutory deadline for the submission of s179 valuations?
For schemes which became registrable prior to 6 April 2007, the statutory deadline for schemes to submit their first s179 valuation is the earlier of:
a) 31 March 2008, or
b) within 15 months of the effective date of the valuation.

My scheme was registered on/after 6 April 2007. What do I do about submitting my s179? (added 15/11/07)
The s179 needs to be submitted within 15 months of the effective date of the first s.224 valuation.

How will my levy be calculated if I fail to submit my s179 before the 31 March 2008 deadline? (added 15/11/07)
Where the mandatory s179 valuation has not been submitted, the PPF will calculate the assets and liabilities used to assess underfunding for your levy invoice for 2008/09 and 2009/10 as follows:

the section 179 valuation as at 31/10/06 used in your 2007/08 levy invoice calculation that was obtained by converting your minimum funding requirement (MFR) valuation will be treated as if it had been submitted to us in the usual way
this will be rolled forward to the calculation date (31/10/07 for 2008/09 and 31/03/2008 for 2009/10) in accordance with our standard formulae, but
we will reduce the value of the scheme’s assets by 5 per cent for each year between the effective date of the MFR and the calculation date.

Should I have sent my section 179 valuation to the Pensions Regulator or the PPF, or both? (added 20/12/2007)
Section 179 valuation information should have been submitted to the Pensions Regulator as part of the scheme return. This is sufficient for meeting the statutory deadline of 31 March 2008. The PPF also accepted s179s via our online voluntary certificate. Any s179s submitted this way will be taken into account in 2008/09, unless a more recent valuation is held by the Regulator.

I submitted my section 179 valuation within 15 months of the valuation date. Will the PPF take it into account for the 2008/09 and 2009/10 levy if I still submit it by 31 March 2008 ? (added 05/3/08)
As set out in the Pension Protection Fund (Valuation) Regulations 2005, as amended by Pension Protection Fund (Miscellaneous) Regulations 2007, it is a legal requirement for all eligible schemes (other than new schemes) to provide their first s179 for 2008/09 levy calculations onwards to the Board of the Pension Protection Fund

(i) within 15 months of the relevant time of that valuation; or
(ii) by no later than 31st March 2008,

whichever is the earlier.

The PPF has stated that it will apply a disincentive to the levy calculation of any scheme which fails to submit an initial valuation by 31 March 2008 (other than schemes not legally required to file a valuation by that date).

However, the Determination of the Pension Protection Fund Levy for 2008/09 does allow us to accept valuations that have been prepared in a manner fully in accordance with the Regulations even if they have not been filed within the deadlines specified by those Regulations. The PPF will therefore accept section 179 valuations submitted more than 15 months after the effective date, provided they are still submitted by 31 March 2008, and use them for the 2008/09 and 2009/10 levy calculations.

Please note that failure to submit the s179 within the 15 months is still a contravention of pension legislation which the Pensions Regulator has powers to address in furtherance of its statutory objectives. We would therefore stress the importance of trying to fulfil this legal requirement if at all possible.

To be absolutely clear, all schemes (other than new schemes) which failed to submit the section 179 by 31 March 2008 will have the disincentive applied to their PPF calculation, as described elsewhere on this page, for two levy years.

Do schemes in assessment have to complete a section 179 valuation? (added 20/12/2007)
If a failure notice under s122(2)(a) of the Pensions Act 2004 has been filed by a scheme on or before 31 March 2008 and has subsequently become binding, we do not require that scheme to complete a s179 valuation.

If no s122(2)(a) notice is received and if the scheme or section has not filed its first s179 valuation by 31 March 2008, the scheme will be charged the full levy, which will be calculated applying a disincentive as described here.

Did schemes which are winding up or have wound up have to submit a section 179 valuation?
All eligible schemes were required to submit a section 179 valuation by 31 March 2008. If you believe your scheme to be ineligible for any reason, please get in touch with the PPF’s Stakeholder Support Team for more information on what to do.

Did schemes which have had their levies waived have to submit a section 179 valuation by 31 March 2008?
Yes. A scheme which has had its levy waived still remains eligible for the PPF. All eligible schemes had to meet the 31 March 2008 deadline.

Did new schemes have to submit a section 179 valuation by 31 March 2008? (added 20/12/2007)
If your scheme was registered on or after 6 April 2007, you needed to submit your initial section 179 valuation within 15 months of the effective date of the first actuarial valuation obtained under section 224 of the Pensions Act 2005 (actuarial valuations and reports).

How will the levy be calculated for a scheme which hasn’t had to submit a section 179 valuation yet? (added 20/12/2007)
For any scheme that becomes eligible on or before 1 April 2008, but hasn’t yet been required to file a valuation or scheme return by legislation or by the Pensions Regulator by midnight on 31 March 2008, we have the discretion to obtain any necessary information from the scheme in order to calculate the levy.

If no information is conveniently available and if it doesn’t appear to the Board of the PPF that the scheme is materially underfunded, we may determine a nil levy.

I am aware that one of the changes brought about through the publication of the new version of the guidance for undertaking a section 179 valuation (version G4 issued in April 2007) was an amendment to the definition of Normal Pension Age. Section 179 valuations must (under this version of the guidance) use the definition of Normal Pension Age as provided in paragraph 34 of Schedule 7 to the Pensions Act 2004. How will this be taken into account in the roll forward methodology to transform the liabilities to the date required for the purpose of calculating the pension protection levy? (added 6/9/07)
The Board of the Pension Protection Fund will publish its approach in the Pension Protection Levy Determination for 2008/09 which is expected to be published in the autumn of 2007. However at this stage it is anticipated that no allowance will be made in the roll forward methodology for this change in definition of Normal Pension Age i.e. the version of guidance used will have no bearing on the roll forward approach.

How do I allow for the compensation cap when valuing the protected liabilities for a section 179 valuation undertaken in accordance with version G4 of the section 179 guidance where a non-pensioner has tranches of compensation with different NPAs? (added 6/9/07)
Where a member has tranches of benefit with different NPAs, each tranche should be restricted based on the compensation cap at the latest NPA. The benefit for each tranche should be reduced on a pro-rata basis based on the compensation cap that applies at the effective date at the valuation. The cap does not need to be projected to NPA nor compensation reduced when later tranches come into payment (unlike a s143 valuation).

Here is an example to illustrate how it should work (using sample values for the compensation cap).

Member aged 50 at effective date of valuation

Scheme benefit at effective date of valuation (£p.a.) of

Tranche A (pre 97) NPA 60           £20,000 p.a.
Tranche B (pre 97) NPA 65          £8,000 p.a.
Tranche B (post 97) NPA 65        £15,000 p.a.

Compensation cap in force at effective date of valuation

For age 65 (latest NPA) £29,000 p.a.

% cap used = (20,000 + 8,000 + 15,000)/29,000.00 = 148.28%

Amounts (all as at effective date of valuation) of compensation after application of 90% and compensation cap:

Tranche A (pre 97)
Payable from age 60 (pre 97) = 20,000 x 90% / 148.28% = £12,139.20

Tranche B (pre 97)
Payable from age 65 (pre 97) = 8,000 x 90% / 148.28% = £4,855.68

Tranche B (post 97)
Payable from age 65 (post 97) = 15,000 x 90% / 148.28% = £9,104.40

This compensation can then be valued using the net discount rates in deferment as prescribed in the s179 guidance.

When the section 179 valuation guidance changed from G3 to G4, the need to value certain benefits (such as death before retirement lump sum benefits) was lost. Does this mean that we can also exclude these benefits (such as death before retirement lump sum benefits) from the cost of accrual (item b) in the Actuarial Certificate of Deficit Reduction Contributions (“ACDRC”) calculation?(added 22/1/08)
The ACDRC guidance (section 2.6) refers to the cost of accrual of scheme benefits (item b), subject to the adjustments described in section 4.1 of the Section 179 guidance. However, it is the intention that other aspects of section 4 of the Section 179 guidance are also taken into account when calculating the cost of accrual for ACDRC purposes. In particular, details of the death benefits provided in section 4.8 should be taken into account for this calculation, such as the inclusion of the 50% spouse’s pension (section 4.8.1) and the choice to exclude pre-retirement lump sum death benefits (section 4.8.2).

How do I allow for the compensation cap when valuing the protected liabilities for a section 179 valuation undertaken in accordance with version G4 of the section 179 guidance where a non-pensioner has tranches of compensation with different normal pension ages (“NPAs”) and the member is currently between NPAs? (added 28/1/08)
The compensation cap does not apply to tranches of benefit where the member is aged above the normal pension age (“NPA”) for that tranche.

The compensation cap will still apply to tranches of benefit with NPAs in the future; each applicable tranche should be restricted based on the compensation cap at the latest NPA. The benefit for each tranche should be reduced on a pro-rata basis based on the compensation cap that applies at the effective date at the valuation. The cap does not need to be projected to NPA nor compensation reduced when later tranches come into payment (unlike a s143 valuation).

Here are examples to illustrate how it should work (using sample values for the compensation cap) for a member aged between the NPAs of 60 and 65 e.g. 62.

Example A. Scheme benefit at effective date of valuation of

Tranche A (pre 97) NPA 60           £20,000 p.a.
Tranche B (pre 97) NPA 65          £8,000 p.a.
Tranche B (post 97) NPA 65        £15,000 p.a.

Compensation cap in force at effective date of valuation: for age 65 (latest NPA) £29,000 p.a.

Tranche A
Payable from age 60 (pre 97) = £20,000 payable immediately, i.e. no reduction to a 90% level of compensation, no compensation cap restriction;

Tranche B
% cap used = (8,000 + 15,000)/29,000 = 79.31%

The benefit under tranche B would not exceed the compensation cap at age 65 so would not be restricted, only reduced to a 90% level of compensation.

(pre 97)
Payable from age 65 (pre 97) = 8,000 x 90% = £7,200.00

(post 97)
Payable from age 65 (post 97) = 15,000 x 90% = £13,500.00

Example B. Scheme benefit at effective date of valuation of

Tranche A (pre 97) NPA 60           £8,000 p.a.
Tranche B (pre 97) NPA 65          £20,000 p.a.
Tranche B (post 97) NPA 65        £15,000 p.a.

Compensation cap in force at effective date of valuation for age 65 (latest NPA) = £29,000 p.a.

Tranche A (pre 97)
Payable from age 60 (pre 97) = £8,000 payable immediately, i.e. no reduction to a 90% level of compensation, no compensation cap restriction;

Tranche B
% cap used = (20,000 + 15,000)/29,000 = 120.69%

(pre 97)
Payable from age 65 (pre 97) = 20,000 x 90% / 120.69% = £14,914.24

(post 97)
Payable from age 65 (post 97) = 15,000 x 90% / 120.69% = £11,185.68

This compensation can then be valued using the net discount rates in deferment as prescribed in the s179 guidance.

If my scheme does not provide a contingent spouse’s pension do I need to value one for my section 179 valuation? (added 7/3/08)
Paragraph 4.8.1 of our valuation guidance (version G4) sets out that “contingent spouses’ benefits that are to be valued should be based on 50% of the members’ scheme benefits…” Paragraph 4.1 defines what ‘benefits that are to be valued’ means in this context: “the benefits to be valued are the scheme benefits, but taking into account the adjustments contained in the four bullet points below [concerning pension increases, the compensation cap and the 10% reduction]”.

This means that if your scheme does not provide any contingent spouse’s pension then you do not need to include any in your calculation of the protected liabilities. If, however, you would prefer to allow for a contingent spouse’s pension in the value of the protected liabilities (for example, if doing so would simplify your calculations) then you would be permitted to do so for section 179 purposes.

Note that whether spouses’ compensation is payable is determined at scheme level. So, for example, if spouses’ pensions are only provided within the scheme for certain members, on entry to the PPF all members would be entitled to spouses’ compensation and therefore this should be reflected in the section 179 valuation.

How do I submit a s179 completed under G3 of the guidance? (added 28/3/08)
If you are submitting a s179 outside of the 15 month deadline, but before 31 March 2008 for intended usage in the 2008/09 and 2009/10 levy calculations, which was completed using G3, you should complete the s179 valuation certificate currently on the PPF website, print it and then either post it to the PPF by the deadline (of midnight at the end of 31 March 2008) or scan it and email it to schemeinfo@ppf.gsi.gov.uk.

Please note that any submission under G3 should be a submission of a s179 valuation that had already been completed (and signed by a person meeting the criteria specified in legislation) in accordance with the guidance but hadn’t been submitted to the PPF (or reflected in the scheme return) before the submission window brought in by the introduction of G4 expired i.e. G4 must still be used for all valuations with a relevant date on or after 6 April 2007, or with a relevant date prior to 6 April 2007 that had been signed by the appropriate person on or after 1 October 2007.