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To certify or recertify – what are the questions?

It’s that time of year again where the countdown starts for certification and recertification of contingent assets for the coming Pension Protection Fund levy year.  Are you on target for the 31 March deadline?

A contingent asset can make a significant impact on a scheme’s Pension Protection Fund (PPF) levy, but the rigid deadline applying in having a new contingent asset certified, or having a previously certified contingent asset recertified means that it is important not to delay application.

This is complicated by the fact that the confirmations that trustees require to make has been amended again this year. The amendment applies to both certification of new contingent assets and recertification of existing contingent assets.

Trustee certification

Trustees certifying/recertifying a guarantee for the coming year are required to be able to make the following statement in relation to this:

“The trustees, having made reasonable enquiry into the financial position of each certified Guarantor, are reasonably satisfied that each certified guarantor, as at the date of the certificate, could meet in full the Realisable Recovery certified, having taken account of the likely impact of the immediate insolvency of all of the relevant employers”.

Realisable Recovery

This certification wording has changed from that applying in previous years. Last year, the trustees were required to certify that they had “no reason to believe that each certified guarantor...could not meet its full commitment" which referred to the full guaranteed amount. This year, reference is made to “Realisable Recovery” which is a fixed sum that the trustees are comfortable the guarantor will be able to pay.

The Realisable Recovery figure can be lower than the full guarantee amount, which allows trustees to certify a different figure each year without having to formally amend the guarantee already in place. In line with previous certification wording, this requires trustees to be comfortable that the guarantor could meet the Realisable Recovery amount, but stops short of the trustees requiring absolute certainty that this would be the case.

The PPF are of the opinion that trustees should always have had in mind what the monetary value of the guarantee was in terms of what could actually be paid, and therefore this change should not make the process any more complex.

Guarantor strength

The PPF have recently published guidance on how they assess the strength of guarantors which demonstrates that there is no checklist of factors taken into consideration in every case, and these will vary from case to case.

What should trustees be asking?

The guidance includes a reminder for trustees when assessing guarantees that they should be going further than just reviewing the covenant of the guarantor generally, and should:

  • Ensure that guarantor is “good for” the amount of the guarantee they are certifying in cash terms,
  • Make proper enquiries as to the financial position of the guarantor,
  • Consider the impact of any insolvency of the sponsoring employer on the guarantor,
  • Consider all factors which may have an impact on the ability of the guarantor to meet the certified amount, and
  • Be able to show they have challenged any assertions made by the guarantor including taking advice where necessary.

If you have any questions or would like more information, please contact one of our specialists below.

Author: Vicki Thomas

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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Colin Greig

Partner

I am a Partner specialising in pensions law.

Tim Green

Partner - Head of Pensions

I am a Partner in the Pensions team with a broad advisory, transactional and dispute resolution practice.