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Re-certification of PPF guarantees: Deadline alert!
17 February 2010
The deadline for the submission of documentation to the Pension Protection Fund for the certification of contingent assets is 31 March 2010.
All existing contingent asset agreements need to be re-certified by the same date. Trustees and employers will also need to ensure that they comply with the new version of the contingent asset guidance.
What are contingent assets?
Contingent assets are used to reduce the risk of an employer insolvency event resulting in a claim on the PPF and so can reduce substantially a scheme’s risk-based levy bill. Parent company guarantees, security over cash or securities or UK real estate, letters of credit and bank guarantees are all examples of contingent assets.
Parent company guarantees
Parent company guarantees can be one of the most effective methods of using contingent assets to reduce an employer’s failure score and so reduce the risk-based part of the levy. Essentially, the sponsoring employer’s D&B failure score is swapped with that of the parent company (or that of an associated company, if that associated company is providing the guarantee), if it is higher.
It is important to note that if the guarantor’s insolvency risk is greater than the insolvency risk of the sponsoring employer, the guarantee will be ignored for the purposes of reducing the risk-based levy calculation. The PPF’s standard form of guarantee must be used and a legal opinion must be given to the trustees that the guarantee is a legally binding, valid and enforceable obligation of the guarantor.
Our pensions team can provide you with both of these documents and assist you with the process. The re-certification of contingent assets does not usually require a new legal opinion.
To make an application to certify or re-certify a contingent asset, please get in touch with your usual contact at the pensions team, or contact Céline Hickey on 03700 868 388 or at celine.hickey@shoosmiths.co.uk for further information.
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Celine Hickey
Associate
T: 03700 86 8388
I: +44 (0)1908 48 8388
E: celine.hickey@shoosmiths.co.uk