PPF contingent assets - Changed requirements

The Pension Protection Fund (PPF) published new forms of contingent asset agreements in January along with new contingent asset guidance. It follows its publication of a final determination and levy policy statement in December for the levy year 2018/19.


The PPF is a lifeboat scheme set up under statute to support pension members whose employers become insolvent and can no longer support their pension schemes. It is funded by way of a levy payable by defined benefit pension schemes which is broadly calculated by reference to the size of the deficit in the scheme and the insolvency risk posed by the employer(s). This insolvency risk can be mitigated by the use of contingent assets (guarantees, charges and letters of credit) provided these are properly registered and certified with the PPF and comply with PPF requirements including the use of specific form documents.

New and changed requirements

  • Introduction of a requirement in respect of Type A group company guarantees where certification would result in a levy saving of £100k + for trustees to obtain a guarantor strength report from a professional adviser;
  • New form contingent assets which need to be executed for any new arrangements entered into on or after 18 January 2018;
  • Schemes which currently have either a Type A guarantee or a Type B charge which includes a fixed monetary cap on liability will need to be re-executed in the new form by no later than the start of the 2019/2020 levy year.

Implications of main changes

Those schemes with contingent assets in place and executed before 18 January 2018 do not need to adopt new forms for this levy year (2018/2019) and should re-certify them as normal if they want to take advantage of any potential levy savings.

Those schemes whose certification of a Type A guarantee will result in a levy saving of £100k or more need to obtain a report - a guarantor strength report - from a professional covenant adviser (with input from other professional advisers as appropriate) as soon as possible.

The new forms of contingent assets see some quite major changes including more options to be agreed between trustees and guarantors. Although we think these changes provide greater flexibility, our view is that the cost of putting such arrangements into place will increase as trustees and employers (and their lawyers) will have more option to negotiate wording. The guidance is also not particularly clear as to what the PPF will regard as "standard form" going forward, particularly where it has suggested some free form drafting is allowed.

What are the main changes to the PPF standard forms?

  • The definition of 'Guaranteed Obligations (Secured lLabilities in a charge) has changed - it now refers to all obligations and liabilities of the employers to the scheme but can be tweaked via additional and optional wording to include either fixed amount or fluctuating caps;
  • The most fundamental change is where parties wish to include a fixed monetary cap on liability. This is now split into two - one pre-insolvency and one post-insolvency. The post- insolvency cap will be the figure taken into account for levy calculation purposes. A pre-insolvency cap cannot be included if the post insolvency one is fluctuating - i.e. is based on either the section 179 liability or the section 75 liability in the scheme. However, parties can choose to include a pre-insolvency cap if they want to where a fixed post-insolvency cap is included. This will result in two caps;
  • Pre-insolvency limits can either be unlimited, at least equal to any post insolvency cap (less any pre-insolvency demands) or re-set annually by reference to total contributions due from employers to the scheme;
  • Clearer wording around the guarantee/charge being for the benefit of future trustees;
  • Removal of the amendment and release criteria (although parties can agree to keep it) and replacement by wording allowing amendments and releases by agreement in writing - in which event the trustees consent must not be unreasonably withheld or delayed. The parties can agree matters that must be considered by the trustees on request of the guarantor/chargor to make any changes - but can remain silent on this point.

Our view of the amendments

Although we welcome the flexibility the amendment provisions allow trustees and guarantors and the ability to set new forms of pre-insolvency caps, agreeing the precise form of document may add additional cost and time in agreeing the document. Additional costs will also be incurred in respect of any registration process required for charge, and in the PPF certification process itself including any new legal opinion(s) needed. We will report on this further once the PPF has released further detail.

What do trustees need to do to be able to certify a 'Realisable Recovery'?

In order for trustees (and employers) to take advantage of the certification of a Type A group company guarantee, trustees need to certify a fixed monetary amount that a guarantor could meet if demand was made by the trustees - the 'Realisable Recovery'.

This means they should certify the lower of: any fixed post-insolvency cap and an amount that the trustees are reasonably satisfied that the guarantor(s) could meet if called upon to do so having taken account of the likely impact of the immediate insolvency of the relevant employers (other than any guarantor which is also an employer).

In other words, trustees need to be comfortable that the guarantor could meet this amount and must take proportionate steps to assess the capability of the guarantor to do so

It is also now possible (but not compulsory) to certify different realisable recovery amounts for different guarantors by submitting separate contingent asset certificates.

What about where the levy saving will (or could) be more than £100K?

A new requirement has been introduced requiring trustees to certify that they have obtained an independent covenant assessment in respect of the guarantor (and provide a copy to the PPF by 5pm on 29 March 2018). This needs to be prepared by a professional adviser and be capable of being replied upon by the PPF and meet other criteria set out in the PPF guidance.

Helpfully, where the guarantor strength report is consistent (in the opinion of the PPF) with its guidance, the risk reduction test will be deemed to be met and the guarantee taken into account for the purposes of calculation of the levy.

While the PPF is not completely prescriptive in the factors which must be included in the report, it has set out a long list which it expects to be included (and expects an explanation where the professional adviser considers them irrelevant).

What happens if no guarantor strength report is obtained and the levy saving is more than £100k?

Where a report is required but not obtained, the default position is that the guarantee will be rejected by the PPF. However, the PPF has discretion to allow trustees to submit further information to support the 'Realisable Recovery'. It is more likely to exercise this discretion where the trustees had obtained an estimate that the levy saving would be less than £100k and the trustees reasonably believed that would be the case.

Where a scheme identifies that it is close to the £100,000 threshold, we advise that a guarantor strength report is obtained to avoid any question of the guarantee not being accepted for levy reduction purposes.


As noted above, certification and re-certifications need to be completed by the end of the current levy year. This year that means that where hard copy documents need to be sent to the PPF for new certifications or re-certifications where either a guarantor strength report is required or a new valuation of property has to be produced, the deadline is 5pm on Thursday, 29 March. Other certifications can be done on 'Exchange up to 31 March'. However, as that is the Easter Bank Holiday weekend we suggest schemes should work towards close of play on 29 March.


This information is for general information purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Please contact us for specific advice on your circumstances. © Shoosmiths LLP 2024.



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