Pensions Bulletin 2019/37

Our viewpoint

PPF launches consultation on 2020/21 levy

As expected, the PPF has announced very few changes to its standard levy methodology for the 2020/21 levy season in its consultation launched on 25 September.  However, declining gilt yields result in it expecting an average 8% increase in levies relative to 2019/20 bills.

The PPF expects to collect £620m in levies for 2020/21 which compares to the £575m now expected to be collected in the 2019/20 PPF levy year.  The latter is higher than the original 2019/20 estimate of £500m due to lower than expected improvements in both the funding of new section 179 valuations and sponsors’ insolvency scores.

Some of the main elements in the consultation to note are:

  • The publication of a GMP Equalisation information note that confirms new submissions of section 179 valuations with an effective date after the Lloyds Bank judgment last October should include a GMP equalisation allowance (which can currently be calculated on a best estimate basis). There will be no adjustment made to previous valuations submitted without a GMP equalisation allowance
  • Revised guidance on guarantor strength reports to ensure they provide a holistic assessment and avoid a tick-box approach. The treatment of guarantor-employers is also clarified, preventing service companies from being guarantors
  • A call for evidence if GMP equalisation adjustments are significantly affecting employers’ accounts and hence their insolvency scores
  • A recalibration of the S&P Credit Model used to score certain banks and building societies (but not insurers) that will on average worsen the scores of these employers by nearly two notches
  • The PPF continuing not to propose any changes in levy calculation at this stage to allow for the Hampshire case (which effectively states that the PPF should provide members with at least 50% of the value of their scheme pension, including increases), or the Bauer case (which could increase PPF compensation to the member’s full scheme benefits)

The timings for providing information and for carrying out any levy mitigating actions broadly follow the same format as previous years.  The consultation closes on 5 November 2019, with the final methodology for the 2020/21 levy expected to be published by the end of the year.

The consultation on the rules for the next Levy Triennium, running from 2021/22 to 2023/24, will start in earnest in the next few months and will initially focus on the measurement of insolvency risk and the change in insolvency risk provider from Experian to Dun & Bradstreet.  The PPF will consult on other aspects of the rules after that.


Very much a “business as usual” set of draft rules but that doesn’t just mean “do the same as last year”.  Market conditions are causing PPF levies to increase so new levy mitigation actions might become valuable and as ever it’s worth checking the insolvency scores for sponsoring employers.  But we’ll have to wait a little longer to find out about the PPF’s plans for the following three levy seasons.

GMP equalisation group issues methodology guidance

The industry group set up to deliver “good practice” guidance on tackling GMP equalisation has now published guidance that seeks to address a number of ancillary issues that arise in implementing an equalisation project that were not directly addressed either by the Lloyds Bank judgment or by the DWP in its GMP conversion guidance.

The “guidance note on methods” suggests approaches that schemes may wish to adopt to address common questions which it says are “proportionate and pragmatic” and as such should be considered to be “good practice” for schemes to adopt.

The guidance is split into three sections – correcting past underpayments, approaches to equalising future benefit payments and common unanswered issues.  The guidance also includes some worked examples designed to demonstrate the various methods that can be used to achieve equalisation.


This guidance, put together by industry experts and welcomed by both the Pensions Regulator and the Pensions Ombudsman, should provide great assistance to those undertaking equalisation projects.  It should also help to spread knowledge of the issues involved beyond a relatively small group of advisers who are specialising in assisting their clients to get to an appropriate landing on this complex reference.

What is now needed is guidance from HMRC to provide reassurance that equalising benefits will not have unreasonable tax consequences on members, nor create disproportionate administration for schemes.  Refinements to the GMP Conversion legislation from the DWP are also awaited.

Investment Association to “red top” high pensions for existing executives

New guidance, issued by the Investment Association, asks that listed companies set out a credible plan to pay all executive directors the same pension contributions (when expressed as a percentage of pay) as the majority of their workforce by the end of 2022.

This is a further step by the Association following its call earlier this year for newly-appointed directors to receive pension contributions that are in line with the majority of the workforce (see Pensions Bulletin 2019/08).

It also follows the July 2018 publication of the revised UK corporate governance code which said that executive pension contribution rates should be aligned with those available to the workforce (see Pensions Bulletin 2018/29).

For companies with year-ends starting on or after 31 December 2019, the Investment Association’s Institutional Voting Information Service (which provides corporate governance research to shareholders to aid their voting decisions) will, from the start of the 2020 AGM season:

  • Newly “red top” any company with an existing director who has a pension contribution over 25% of salary and has not set out a credible plan to reduce that contribution to the level of the majority of the workforce by the end of 2022. If there is a credible plan, the warning reduces to an “amber top”
  • Continue to “red top” any company that appoints a new executive director with a pension contribution out of line with the majority of the workforce. The IA will also “red top” any company whose director changes role with a pension contribution out of line with the majority of the workforce or seeks approval for a new remuneration policy which does not explicitly state that any new director will have their pension contribution set in line with the majority of the workforce


This development is not a surprise, as the Investment Association had called for such reductions to take place when it published its Principles of Remuneration last November (see Pensions Bulletin 2018/48).  The 2022 timeline is presumably intended to allow time for affected directors’ remuneration contracts to be re-negotiated.

Brexit and State Pension – Government to reassure EU27-based pensioners

The Government is to write to those state pensioners living in the EU27 to reassure them that their UK State Pension will continue to be paid after the UK leaves the EU and that even if the UK leaves without a deal the state pension will be uprated for a further three years as if the individuals concerned were living in the UK.

During this three-year period the Government intends to negotiate a new arrangement with the EU to ensure that the uprating continues.

This development follows on from the announcement on 1 September that the Government could only guarantee the uprating for this three-year period (see Pensions Bulletin 2019/33).


The uprating issue also affects those living in the EEA states and Switzerland, but it is not clear whether state pensioners living there will also be contacted.

Structural rather than behavioural factors cause gender pensions gap

Research published by Nest Insight has found that there are no real differences in men’s and women’s pension savings behaviours if you allow for patterns of contributions and earnings.  Instead, the causes of the gender pensions gap are structural factors such as earnings, gender concentration in certain sectors and job turnover.

The analysis of 8 million Nest members, around a quarter of the UK’s working population, is supplementary to a report published last year titled “How the UK Saves 2018”.  The latest research finds that whilst there are equal numbers of men and women making additional contributions to their pension pot, women saving in Nest are three times more likely than men to be under the auto-enrolment eligibility threshold.


This is an interesting look at the forces behind the gender pensions gap in the DC space.  The forces behind the gender pensions gap in the wider pensions space will be even more powerful, with valuable DB pensions prevalent during a time when the gender pay gap was more pronounced.

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.

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