Invoicing 2006/07 FAQs
Invoicing - General
When will I receive my 2006/07 levy invoice? In advance, please can I have an indication of the amount of the levy?
The Pension Protection Fund will begin issuing 2006/07 pension protection levy invoices from mid September 2006.
We will initially be issuing an estimated 300 pension protection levy invoices per week, so schemes may not receive their invoices for some months.
Unfortunately, we are not able to advise schemes of the amount due in respect of the pension protection levy until we issue the scheme with an invoice. This is because we do not have complete, accurate data for all schemes at present. Moreover, the final levy calculation for a scheme occurs at the point an invoice is issued, so changes to the levy amount may occur up to that point.
I have received my levy invoice but have since lost it. Please can you send me a copy of the invoice?
Yes we can send you a copy of the invoice. Please provide your full scheme name and your SSID (Scheme/Section IDentifier), if available, to help us locate your invoice.
Can I have extra copies of the levy booklet accompanying the invoice?
"A Guide to the Pension Protection Levy 2006/07" can be viewed on this website. If you would like more hard copies, these can be ordered by phone or email: Telephone: 020 8867 3297. Email: pensionprotectionfund@ecgroup.uk.com, quoting reference PPF0602.
I thought the RBL calculation was a combination of U and P: the formula shown on my invoice is just 0.005 * L – why?
The risk based element of the pension protection levy is subject to a levy cap of 0.5% of estimated liabilities on a section 179 basis. Where the risk based levy calculated using the formula RBL = U x P x Levy Scaling Factor x Percentage risk based exceeds 0.5% of estimated section 179 liabilities, the cap will apply and the risk based levy will be re-calculated using RBL = 0.005 X L.
How will the Pension Protection Fund administration levy be invoiced?
The Pension Protection Fund administration levy will be included on a separate invoice, alongside various other levies (e.g. the Pension Regulator’s General Levy).
Does a scheme in an assessment period still have to pay the pension protection and the administration levies?
Yes. Schemes that have entered into an assessment period are necessarily eligible schemes and are therefore liable to pay the associated levies as set out in the Pensions Act 2004. There is no certainty when a scheme enters into an assessment period whether or not the Pension Protection Fund will ultimately assume responsibility for the scheme hence that scheme remains liable to pay the levies.
Underfunding Risk
The scheme submitted an s179 voluntary form - why is the asset/liability figure based on an MFR valuation?
The PPF will only calculate a scheme’s 2006/07 levy with reference to its MFR valuation if a Section 179 valuation was not received before 31 March 2006, or where a section 179 certificate did not meet legislative requirements or the Board’s rules.
The scheme has paid special contributions – why are these not included in the assets?
The deadline for submitting Deficit Reduction Certificates to the Board for inclusion in the 2006/07 levy calculation was 7 April 2006. No new information can be accepted after this date.
I do not follow the funding level calculation – please can you explain it?
The scheme funding level is determined as: (total scheme assets/liabilities) x 100.
Total scheme assets take account of any certified special contributions paid into the scheme since the most recent valuation and any type B and C contingent assets.
Liabilities are the liabilities of the scheme on a section179 basis as at 31 March 2006.
Insolvency Risk
Why is my Failure Score “X” and how can I appeal it?
If you just wish to discuss the specific data elements that have been used to determine your 31 March Failure Score, you should contact D&B’s dedicated Pension Protection Fund helpline on 0870 850 6209, or by emailing customerhelp@dnb.com
If you then wish to query the data elements included in the calculation of that score, you may request an appeal, up to 28 days after issue of a levy invoice, again by contacting D&B's dedicated UK helpline.
D&B will then undertake a robust appeals process in every case including: stage 1- Data validation; stage 2- Score explanation; and stage 3- escalation of the review through the D&B customer manager, scoring specialist, global scoring team and finally D&B director. Further information on this appeals process is available in chapter 10 of the Pension Protection Levy Consultation Document December 2005.
From the scoring specialist review stage and above, D&B may reassess how the generic Failure Score methodology has affected the score of that particular employer. Where the specialist considers that the Failure Score should be manually overridden, the Score will be amended by that specialist to better reflect the true risk of insolvency
How does D&B calculate the insolvency risk for branches of foreign companies registered in the UK?
For the UK branches of foreign companies registered in the UK (identified with an FC prefix on their Companies House Registration number), the Board will use the Failure Score of the foreign company.
Where that Failure Score is not available, the Board will use the average probability of insolvency for the UK sponsoring employers of defined benefit pension schemes within the relevant industry. For example, if the foreign company is a bank, the probability of insolvency for the UK branch will be the average probability of insolvency for all UK banks that sponsor defined benefit pension schemes.
In order to define industry groups, the Board will use the first two digits of the 1972 Standard Industry Classification (SIC) codes. Please note, where a three digit 1972 SIC code is given, it should be preceded by a 0. Therefore, ‘123’ would be ‘0123’ and the Board would require the two digit SIC code ‘01’
How do I obtain my industry average probability of insolvency?
A specific employer’s industry average probability of insolvency can be obtained from the Pension Protection Fund Stakeholder Support Team on 0845 600 2541 or at information@ppf.gsi.gov.uk. To obtain this information you will need to provide the employer’s two digit SIC code which can be obtained by contacting D&B’s dedicated Pension Protection Fund helpline on 0870 850 6209, or by emailing customerhelp@dnb.com.
Why are the assumed probabilities of insolvency attached to particular D&B Failure Scores different for every OECD country?
The assumed probabilities of insolvency attached to particular Failure Scores (or local equivalents) differ between OECD countries due to variations in the overall national insolvency rates which are reflected in local scoring models.
I have received an invoice. In the table detailing all the participating employer information, the DUNs number and failure score in respect of one of the employers is blank.
The Failure Score will be blank (and the DUNs may be blank) where a scheme or industry average probability of insolvency score has been used, as per paragraph 27 of the Board’s Determination under section 175(5) of the Pensions Act 2004. In this event, D&B will directly calculate a probability of insolvency for the employer, based on the average probability of insolvency for the relevant employers, and therefore no Failure Score applies.
I do not agree with the employee numbers used on my invoice – can I change them? (added 20/10/06)
Schemes wishing to appeal employee numbers used on the invoice should contact D&B’s dedicated Pension Protection Fund helpline on 0870 850 6209, or by emailing customerhelp@dnb.com and raise an appeal.
I have recently received a pension protection levy invoice and I believe that the probability of insolvency provided for a particular employer is the industry average probability of insolvency applied when D&B are unable to calculate an individual score and are unaware of the correct Statutory Industry Classification (SIC) code for that employer. How can I query that probability? (added 13/11/06)
If D&B has been unable to calculate an individual Failure Score for a particular employer and has also been unable to determine the relevant SIC code that should be applied to that employer, the industry average probability of insolvency for all employers with an unknown SIC code will be assigned.
If a scheme wishes to seek an amendment of that insolvency probability, the scheme should provide D&B with the correct SIC code for that employer, either by emailing customerhelp@dnb.com, or by calling the dedicated D&B helpline for PPF related queries on 0870 850 6209.
Contingent Assets
How is the discount factor, z, calculated?
The discount factor z is equal to:
1 – (probability of insolvency of the guarantor/probability of insolvency of the sponsoring employer(s))
A Type A contingent asset affects the risk based levy calculation by substituting the insolvency risk of the guarantor for that of the sponsoring employer(s) for the part of the deficit guaranteed. This is achieved by applying this “z” factor to the deemed value of the type A contingent asset.
Why does the funding level calculation not take account of my Type A guarantee?
Type B and C contingent assets affect the levy calculation by increasing the scheme funding level. A Type A contingent asset however, affects the risk based levy calculation by substituting the insolvency risk of the guarantor for that of the sponsoring employer(s) for the part of the deficit guaranteed, therefore the Type A contingent asset should not be taken into account in the calculation of the scheme’s funding level.
How is the Type A contingent asset taken account of in the levy calculation?
A Type A contingent asset affects the risk based levy calculation by substituting the insolvency risk of the guarantor for that of the sponsoring employer(s) for the part of the deficit guaranteed. This is achieved by applying the discount factor ‘z’ to the deemed value of the Type A contingent asset in the formula for determining total scheme assets: A = S + C + (N x z). The discount factor z is equal to 1- (probability of insolvency of guarantor/probability of insolvency of sponsoring employer(s)).
I have put a Type A contingent asset in place, the probability of insolvency of the guarantor company now exceeds that of the sponsoring employer, does this mean that the guarantee has had a negative effect on the levy calculation?
For the purposes of the risk based levy for 2006/07, the Board will look at the assumed insolvency probabilities (based on D&B data) for both the guarantor (A) and the sponsoring employer(s) (B) on 31 March 2006. If on that date the insolvency probability of B is higher than that of A, then the guarantee will be taken into account and will result in a reduction in the levy in accordance with the formulae set out in the levy determination. If, however, on that date the insolvency probability of the guarantor A is actually higher than that of employer B, then the guarantee will be ignored for the purposes of the levy.
NB: A = asset calculation; S = value of scheme assets; C = special contributions (post effective valuation date); N = face value of contingent asset; z = discount factor
Payment Of Levy Invoice
When does the invoice need to be paid?
The invoice should be paid immediately, wherever possible. However, schemes will have 28 days to pay the amount requested from the date that appears on the front of the invoice before debt collection activity will commence.
What happens if we refuse to pay on time?
Under section 175 of the Pensions Act 2004, the Board of the Pension Protection Fund is required to raise a pension protection levy.
Under section 181 of the Pensions Act 2004, the trustees of the scheme are required to pay this amount to the Board, and the Board intends that the invoice and the supporting documentation issued with it will enable levy payers to meet their statutory obligations to pay this invoice immediately. If the trustees wish to query the amount of pension protection levy payable by the scheme, they must raise their query within 28 days of the date of this invoice by contacting the Pension Protection Fund using the contact details shown on the invoice.
If no query is raised with the Board within 28 days, the Board will begin debt collection activities. The Board will carry out these debt collection activities rigorously, in ways that are clearly compliant with applicable legislation, and in ways that are consistent with its overall stakeholder management strategy.
What happens if we are unable to pay on time?
Paying the pension protection levy is compulsory and, since payment can be made from scheme assets, all schemes should be able to pay on time. If your scheme is fully insured, and there are no free assets to pay the levy without surrendering an insurance policy, please see the final FAQ, regarding levy waivers.
As far as affordability is concerned, the Board set a risk based levy cap of 0.5% of the scheme’s liabilities on a section 179 basis as at 31 March 2006. It is expected that this cap will affect 5% of eligible schemes. The Board considers the level of the risk based levy cap to be reasonable taking into account the need for each scheme to maintain appropriate funding levels in addition to paying the annual pension protection levy.
How and to whom do we make payment?
Schemes are strongly encouraged to pay their invoice electronically into the Pension Protection Fund’s bank account, quoting their scheme name and invoice number, using BACS, CHAPS or internet banking. This is the simplest, most secure and effective method helping to reduce administration costs. Full payment instructions will be provided with the invoice.
Will the PPF accept cheques in payment of protection Levy invoices?
Payment using electronic methods (BACS, CHAPS, Internet Banking) are the most efficient and secure ways of paying your Protection Levy invoice. If it is absolutely impossible for you to use any of these methods, then of course the PPF will accept payment by cheque. Please make your cheque payable to “The Pension Protection Fund” and make sure you have referred to the invoice(s) you are settling – for example, by enclosing a photocopy of the front page of the invoice itself. Please mail the cheque and supporting documentation to the following address:
Pension Protection Fund
Pension Protection Levy collection
Knollys House
17 Addiscombe Road
Croydon
Surrey
CR0 6SR
Can trustees recoup the levy costs from members?
The pension protection levy is a liability of the pension scheme trustees. Payment of the levy and the recouping of any costs are the responsibility of the trustees.
Can I appeal my Pension Protection Fund Levy?
If the trustees wish to query the amount of pension protection levy payable by the scheme, they must raise their query within 28 days of the date of this invoice by contacting the Pension Protection Fund using the contact details shown on the invoice.
If no query is raised with the Board within 28 days, the Board will begin debt collection activities.
A more formal review process for invoices is also available – further information can be found in “ A Guide to the Pension Protection Levy 2006/07”, a copy of which will be included in all levy invoices, and in “How we deal with your concerns”, which can be found in the Complaints and Reviews section of the Pension Protection Fund website.
If an employer wishes to appeal against its Failure Score, the employer should approach D&B, who have a robust process in place for dealing with appeals (please see FAQ above: “Why is my Failure Score “X” and how can I appeal it?”)
Waivers
Waivers (questions added 31 May 2007)
What is a levy waiver?
The PPF is required to levy all eligible schemes. However, some schemes that are eligible for PPF compensation and so liable to pay a levy pose very little risk to the PPF, or, by the point that they are required to pay the invoice, they pose no risk at all.
Under the Pension Protection Fund (Waiver of Pension Protection Levy and Consequential Amendments) Regulations 2007 the Board has therefore a discretionary power to waive the levy in respect of schemes that fall within a discrete set of prescribed circumstances and pose little or no risk. These schemes may apply to have either their scheme based levy, or risk based levy, or both, waived for the year in question.
The scheme will remain eligible, but no invoice will be payable for the part of the levy being waived that year.
What are the circumstances under which the Board of the PPF has discretion to waive the Levy?
The Regulations in respect of waivers have very strict criteria.
Under the Pension Protection Fund (Waiver of Pension Protection Levy and Consequential Amendments) Regulations 2007 the Board has discretion to waive the pension protection levy in the following circumstances only:
1. Where immediately before 6th April 2006, the scheme was a former approved superannuation fund within the meaning of paragraph 1(1)(b) of Schedule 36 to the Finance Act 2004 and the proposed waiver relates to the amount payable by way of any pension protection levy which was imposed for the financial year beginning on 1st April 2006.
2. Where the scheme is authorised under section 153 of the Act (closed schemes) to continue as a closed scheme.
3.Where it is satisfied in respect of the scheme that
(a) no further contributions will be paid towards the scheme by or on behalf of members in respect of relevant benefits; and
(b) all relevant benefits which are payable in accordance with each member's entitlement or accrued rights (including pension credit rights within the meaning of section 124(1) of the Pensions Act 1995 (interpretation of Part 1)) under the scheme rules will be provided in full by a policy of insurance or an annuity contract, even when such policies or contracts are held in members names, or by more than one such policy or contract.
4.Where:
(a) the scheme has no active members;
(b) a liquidator has been appointed for the purposes of a voluntary winding up of the company which, immediately before the time at which the scheme ceased to have any active members, was the employer of persons in relevant employment;
(c) the liquidator has sent to the registrar of companies his final account and return under section 94 of the Insolvency Act 1986 (final meeting prior to dissolution); and
(d) it appears to the Board that it is reasonable to expect that the dissolution of the company will take effect on or before 31st December of the financial year to which the proposed waiver relates (but see regulation 7).
In ALL cases, the scheme must supply documentation in support of their application.
What is the difference between applying for a waiver, and being an ineligible scheme?
An ineligible scheme is not eligible to receive PPF compensation should an insolvency event occur in respect of the sponsoring employer(s), and therefore does not need to pay the PPF scheme and risk based levies, which are designed to fund this compensation.
A scheme may apply for a waiver where it is eligible, but poses very little or no risk at all to the PPF, and falls within the prescribed set of circumstances set out in the Pension Protection Fund (Waiver of Pension Protection Levy and Consequential Amendments) Regulations 2007.
A waiver application relates to a single invoice year only – therefore a scheme must reapply for each year it believes it is eligible for a waiver.
When must a waiver application be made?
For the 2007/08 levy year, you need to contact the PPF indicating that you intend to apply for a waiver within 28 days of receipt of your invoice.
Your invoice will contain the final date that you can apply for a waiver.
You must make your application for a waiver before you have paid your invoice.
What else do I need to know when applying for a waiver?
You may only apply for a waiver where:
a) Your application is made within 28 days of receipt of your invoice, and
b) You have not yet paid your invoice.
If your application is made more than 28 days after receiving your invoice, OR you have already paid your invoice, the Board will not be able to consider your application.
How do I apply for a waiver?
Contact the PPF Stakeholder Support Team, clearly indicating that you are applying for a Waiver.
Tel 0845 600 2541
Text phone 0845 600 2542
Fax 020 8633 4903
Email levyinvoice@ppf.gsi.gov.uk
What do I need to supply to the PPF in support of my waiver application?
The information you will need to supply in support of your application will depend upon which criteria you are applying under.
You can use the checklist to help you ensure you provide all of the correct information for your waiver category.
The checklist outlines the minimum information required, but it is not exhaustive, and you should always supply as much information as possible to assist the Board in making their decision.
You need to supply documented evidence for each piece of information requested against the criteria you are applying under
Will the Board always use its discretion to waive the levy?
The Board will not always use its discretion to waive the levy. It will decide on an annual basis whether it is prepared to grant levy waivers for that particular year.
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