Pensions Bulletin 2019/48

Our viewpoint

The PPF finalises the 2020/21 levy

On 16 December the PPF issued its final levy rules for 2020/21 – the last year of the “triennium” of levy seasons running from 2018/19 to 2020/21.  As in the previous two years, the levy scaling factor remains at 0.48, the scheme-based levy multiplier is staying at £21 per £1 million of liabilities, and the risk-based levy cap remains at 0.5% of smoothed liabilities.  The PPF estimates it will collect £620 million in levies for 2020/21.

There are very few changes from the draft rules issued for consultation in September (see Pensions Bulletin 2019/37).  In particular, the PPF notes that the European Court of Justice is due to deliver its decision in the German case (“Bauer”) shortly, which could have a significant financial impact on the PPF (see Pensions Bulletin 2019/20).  However, there is very little scope to recognise this in the 2020/21 levy season as the PPF is bound by legislation on the maximum increase in levy intake compared to the 2019/20 levy season.

The PPF has also taken note of concerns that some employer insolvency risk scores may be adversely affected by GMP equalisation adjustments.  Employers can now request an adjustment if a specific equalisation amount can be identified in the company accounts used to calculate one or more monthly insolvency risk scores and as a result, the company reports a loss instead of a pre-tax profit and the average Levy Band over the year is changed for the worse.

In supporting documentation, the PPF has published its conclusions on the consultation in the form of a policy statement, the final determination that sets out the 2020/21 levy calculation, together with a number of appendices, guidance materials on a variety of topics, and related forms, certificates and documents.

Deadlines for the 2020/21 levy season

The key deadlines for providing information to the PPF are as follows:

  • Midnight at the end of 31 March 2020 for the compulsory submission of scheme returns (including any voluntary section 179 valuations), and certification/re-certification of asset-backed contributions, mortgage exclusions (to Experian), contingent assets (which includes a guarantor strength report where a parental guarantee is expected to save £100,000 or more of levy), and special category employer applications. Hard copy documents supporting submissions need to be received by the PPF by 5pm on 1 April 2020
  • 5pm on 30 April 2020 for certification of deficit-reduction contributions and applications for exempt transfers
  • 5pm on 30 June 2020 for certification of full block transfers that have taken place before 1 April 2020


While this final year of the triennium is “business as usual”, we look forward to what the next triennium might bring: a move from Experian to D&B to provide insolvency scores, the outcome of the Bauer case, and the effect on the PPF’s RPI-linked investments of any changes to the calculation of RPI could affect future levies for all.  In the meantime, pension schemes and their employers can consider their levy-saving measures with a degree of certainty for this coming levy year.

Mini reshuffle – no change to pensions-related appointments

Following Boris Johnson’s victory at the 12 December General Election, on 16 December there was a mini-reshuffle at Cabinet and ministerial level.  However, there has been no change amongst those positions of greatest relevance to pensions policy:

  • DWP – Thérèse Coffey remains Secretary of State for Work and Pensions, Guy Opperman remains the Minister for Pensions and Financial Inclusion, whilst Baroness Deborah Stedman-Scott remains Minister for Work and Pensions
  • HM Treasury – Sajid Javid remains Chancellor of the Exchequer, whilst Rishi Sunak remains Chief Secretary to the Treasury

See here for the latest official list of Government ministers.

The State Opening of Parliament and the Queen’s Speech will take place on 19 December.

Attention now turns to the delivery of pensions policy as outlined in the Conservative Party’s manifesto.  This includes finding a solution to the problems caused by the annual allowance taper in doctors’ pensions, addressing the tax anomaly for low earners contributing to net-pay schemes and most importantly of all, the reintroduction of the Pension Schemes Bill that will amongst other things deliver stronger powers to the Pensions Regulator.


We may have to wait until the Budget, now scheduled for early March, for news on these two tax issues, but the Pension Schemes Bill should be on the road again in the early New Year, enabling the Pensions Regulator to issue its first consultation on the overhaul of the DB funding code.

Regulator publishes DB scheme leverage and liquidity survey

The results of a survey of the investments of the largest DB schemes has provided the Pensions Regulator with initial insights into the potential for systemic market risks to arise.  The Regulator will use these results and further analyses to inform any actions that might be needed to address emerging risks.

The survey is in essence one of landscape mapping and seeks to understand the use of leverage within the DB pensions market, the derivatives exposure in the largest schemes, and the liquidity levels and how liquidity risks and the risks associated with liquidity and collateral are monitored and managed.  The findings from 137 DB pension schemes, with assets totalling £697bn, include the following:

  • 74% of scheme assets cannot have their fair value determined by reference to a quoted price in an active market for an identical asset
  • The total notional principal of all schemes’ derivative contracts outstanding at year end was £520.6bn – and 66% of these were swap contracts
  • Approaching half of the schemes (comprising 58% of total assets surveyed) have increased their use of leverage in the last five years, with interest rate swaps held by 62% of schemes and accounting for 43% of all leveraged investments
  • Basis points to exhaustion was the most commonly used method to estimate potential collateral needs under market stress

The survey was commissioned as a result of the Bank of England’s November 2018 Financial Stability Report which concluded that the use of leverage by non-bank financial institutions, such as DB pension schemes, could support financial market functioning but it could also expose these institutions to greater losses and sudden demands for liquidity, which could give rise to financial stability risks.


Although risks from leverage is nothing new, it appears that such assessments of the non-bank financial system are only coming into focus now.  With a coordinated effort from the Bank of England and other supervisors and regulators, systemic risks can hopefully be more easily identified and monitored.

FCA goes ahead with new IGC oversight duties on ESG policies and other matters

The Financial Conduct Authority has decided to go ahead with proposals consulted on earlier this year (see Pensions Bulletin 2019/15) setting out new duties of Independent Governance Committees (IGCs) and Governance Advisory Arrangements (GAAs) in relation to environmental, social and governance (ESG) and related issues and separately in relation to drawdown investment pathways.

New rules and guidance have been published extending the remit of IGCs (and GAAs) in two areas:

  • A new duty to consider and report on their firm’s policies on ESG issues, member concerns and stewardship, for the products that IGCs oversee; this includes consideration on whether the firm’s policies do enough to address all relevant and significant risks and opportunities, whether the firm’s policies are sufficiently robust to achieve good consumer outcomes, and how the firm has implemented its policies
  • A new duty to oversee the value for money of investment pathway solutions for pension drawdown

The FCA has also published guidance for providers of pension products and providers of investment-based life insurance products.  Both the rules and the guidance, which are little changed from those consulted on, will come into force on 6 April 2020, with the new reporting required of IGCs starting with their first annual report covering a period including or after 6 April 2020.  IGC annual reporting will need to be in a prominent position on the provider’s website.

The FCA has also used its feedback statement to report on the following:

  • The FCA’s review of IGC effectiveness should be concluded by April 2020 and the FCA is aiming to report its findings in Q2 2020
  • Work continues with the Pensions Regulator to develop common principles and standards for the assessment of value for money in pensions, but no timings are set out
  • The FCA aims to publish its policy statement on transaction cost disclosure in early 2020; and
  • A consultation paper on simplification and disclosure remedies to address a lack of competitive pressure in the non-workplace pensions market should be published in Q1 2020


Both new duties for IGCs are highly relevant topics for reporting.  We hope that the reporting will be of use to those affected in workplace personal pension schemes and self-invested personal pensions.

LCP guide to the UK Stewardship Code 2020 published

Following the launch of the revised Stewardship Code by the Financial Reporting Council in October (see Pensions Bulletin 2019/41) we have prepared a briefing note for asset owners, including pension scheme trustees, who want to get up to speed with the revised Code.


The revised Code signals greater recognition of the role that investors play in shaping the future of our society and hence the importance of managing money responsibly for the long-term.  To demonstrate our support, LCP has already committed to signing the 2020 Code (subject to FRC approval) and we encourage others to do so too.

Christmas and New Year break

This is the last edition of the Pensions Bulletin for 2019.  It will return after the Christmas and New Year break.  May we wish readers a merry Christmas and a prosperous New Year!

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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