The information below relates to the 2018/19 levy year. It is a summary of our Levy Rules. For full information, the Levy Policy Statement and Determination can be found on the 2018/19 Determination page.
The main sources of information used in the levy calculation are:
• the most recent s 179 valuation information submitted via your annual scheme return/Exchange
• block transfers certified via Exchange, where applicable
• the average Monthly Score ( the Mean Score) for each scheme employer and guarantor between October 2017 and March 2018 and Levy Band,
• information on bespoke investment risk stress tests where supplied to the Regulator
• Asset Backed Contribution (ABC) certificates submitted to the PPF
• Confirmation of legal advice on scheme structure (Last Man Standing schemes only).
Additional information, submitted via the Pensions Regulator’s Exchange system, which may reduce your levy bill:
• deficit reduction contributions made since the last scheme valuation
• contingent assets pledged to the scheme.
We will not generally use information that has not been submitted by the relevant deadlines for that levy year and/or in the form specified by the PPF or the Regulator, though we do have the right to do so if we consider it necessary to charge an appropriate levy.
How we use this information:
Our Levy Rules for calculating the scheme-based and risk-based levies form the Determination under Section 175(5) of the Pensions Act 2004. These Rules, on which we consult, detail how we have to treat your scheme and employer data for the purposes of the levy. The Levy Rules are a legal document and, as such, govern the way we calculate the levy.
The Levy Rules and annexes and appendices for 2018/19 Determination page. Except for the possible addition of material relating to eligible schemes which cease to have to have a substantive employer after a restructuring of the pension arrangements, it is our firm intention that there will be no other changes to the provisional levy rules. Schemes should therefore feel able to take appropriate steps based upon the provisional rules.
The information below is based on the Levy Rules for the 2018/19 levy year. If you need information on earlier years, determinations and levy guides are available here.
Roll-forward, smoothing and stressing
We use the asset and liability figures from the latest s179 valuation submitted on or before 31 March 2018, to calculate the scheme-based levy and the underfunding risk factor of the risk-based levy.
Assets and liabilities are rolled forward and adjusted to reflect market conditions up to 31 March 2018, and are then ‘smoothed’ to reduce volatility. This is done by using average values over a five year period. This gives us figures for the assets and liabilities that have been smoothed but not stressed (referred to on levy invoices as ‘smoothed assets/liabilities’).
The Unstressed Liability figure is used in the scheme based levy, and in calculating the cap on the highest risk-based levy you can pay.
The next stage in transforming the asset and liability information provided is to take account of investment risk. We do this by applying generic stresses to the liabilities and specified stresses to the assets according to the degree of risk associated with each type of asset held by the scheme (these asset and liability stresses were updated for the 2018/19 Levy Year). However if a scheme carried out and reported the results of its own investment risk analysis, we apply that single overall stress to the total assets.
The scheme-based levy
The scheme-based levy (SBL) is based on a scheme’s liabilities to members on a section 179 basis.
It is calculated in 2018/19 using the formula:
SBL = 0.000021 x UL
UL is the scheme’s liabilities on a section 179 basis rolled forward to 31 March 2018 and smoothed but not stressed.
All schemes pay the scheme-based levy, irrespective of their funding position.
The risk-based levy
The risk-based levy (RBL) is based on the likelihood of a scheme making a claim on the PPF and the potential size of that claim.
It is calculated using the formula:
RBL = underfunding risk (U) x insolvency risk (IR) x levy scaling factor (LSF)
Underfunding risk represents the size of a scheme’s potential claim on the PPF.
U is the underfunding amount of the scheme determined using the scheme’s rolled-forward assets and liabilities, taking account of any valid Type B or C contingent asset arrangements, deficit reduction contributions and certified asset backed contribution value and coupon payments. In the great majority of cases, U is calculated using stressed assets and liabilities (it is calculated using unstressed assets and liabilities if this results in a higher underfunding amount).
Insolvency risk reflects the likelihood of a scheme’s employer(s) becoming insolvent.
IR reflects the risk of insolvency of the sponsoring employer(s), taking into account the scheme structure. From levy year 2018/19 probabilities of insolvency are provided to the PPF using Experian’s PPF-specific model, public credit ratings and S&P’s credit model. IR may be modified where there is a Type A contingent asset.
The levy scaling factor (LSF) scales the amount we collect from all schemes down to ensure that the total levy collected matches the levy estimate. The levy scaling factor for 2018/19 is 0.48.
The risk-based levy is capped to protect the most vulnerable schemes. The cap for 2018/19 is 0.50 per cent (represented by K in the formula) of unstressed liabilities. Where the risk-based levy calculated using the above formula exceeds 0.50 per cent of unstressed liabilities, the cap is applied and the risk-based levy is calculated using the following formula:
Risk-based levy cap = Unstressed liabilities (UL) x K
When carrying out this calculation, we use 0.005 for K