In this week’s update we consider the PPF levy ceiling and consultation on valuation assumptions, funding and the PPF 7800 Index, the delay to the DWP CMA consultation response, public sector pensions and age discrimination and court proceedings brought by the FCA in respect of unsuitable DB pension transfer advice.
PPF levy ceiling and compensation cap for financial year beginning on 1 April 2021
The Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling) Order 2021 confirms that the Pension Protection Fund (PPF) levy ceiling for the financial year starting on 1 April 2021 will stay the same as the previous year's ceiling amount, at £1,099,445,505.
The amount of PPF levies that can be charged in respect of eligible defined benefit (DB) schemes is capped by reference to a 'levy ceiling' which is determined following a review of the general level of earnings. As this level decreased during the review period, the levy ceiling will stay the same.
The standard amount of the PPF compensation cap will also remain the same at £41,461.07, with those who are below their scheme’s normal pension age receiving 90% of the cap, which amounts to £37,314.96.
PPF consultation on S143 and S179 valuation assumptions
The PPF is consulting on updated Section 143 and Section 179 valuation assumptions, which it plans to bring in for valuations with an effective date on or after 1 May 2021. The changes are intended to align the assumptions with current bulk annuity pricing and follow December 2020 discussions with eight active bulk annuity providers.
(Section 143 valuations are carried out during a PPF assessment period to ascertain whether a scheme will have to enter the PPF because it cannot provide benefits at PPF compensation levels or above. Section 179 valuations are undertaken by ongoing schemes and are used by the PPF to set the risk-based levy.)
The main changes are the:
- Updating of mortality assumptions;
- Adjustment of the post-retirement post-97 discount rates to 'better reflect current CPI pricing'; and
- Changing the calculation of wind-up expenses and reducing benefit installation or payment expenses.
The changes are likely to reduce S143 valuation liabilities and improve the S179 funding position, reducing the deficit of schemes in deficit from £253bn to £204bn (as at September 2020). The consultation closes on 18 March 2021 and the PPF's response and decision will be published by 29 April 2021.
Public sector pensions and age discrimination update
HM Treasury has published its response to the July 2020 consultation on changes to public sector pensions to remedy the unlawful age discrimination finding of the Court of Appeal in the 2018 McCloud case (Lord Chancellor and another v McCloud and others; Secretary of State for the Home Department and others v Sargeant and others  EWCA Civ 2844).
The discrimination arose in connection with transitional protection which allowed members near to retirement to stay in legacy schemes which were closed to new joiners when career-average schemes were introduced in 2015.
The Government has confirmed that:
- The legacy schemes will close to further accrual on 31 March 2022; and
- Affected members will be able to choose whether to have legacy or reformed scheme benefits for the period between 1 April 2015 and 31 March 2022 at retirement (referred to as the 'deferred choice underpin') rather than an immediate choice exercise being undertaken now.
The Government expects to introduce the legislation necessary to introduce these changes in mid-2021 and to implement the 'deferred choice underpin' provisions by 1 October 2023 or earlier where schemes can do so.
THE FCA has commenced court proceedings for unsuitable DB pension transfer advice
The Financial Conduct Authority (FCA) has commenced civil proceedings in the High Court against Paul Steel, a director and co-owner of Estate Matters Financial Limited (in liquidation) (EMF), and his partner, Jacqueline Foster. As part of the proceedings, the FCA has secured an interim injunction freezing assets of Mr Steel and Ms Foster up to the value of £7m pending a subsequent hearing.
The FCA alleges that:
- EMF provided unsuitable DB pension transfer advice which resulted in members transferring out of DB pension schemes against their best interests;
- Mr Steel was involved in these breaches and that he also removed EMF's assets so that it could not meet potential liabilities for unsuitable advice yet retained large profits from giving the advice.
The FCA has requested that Mr Steel compensate the affected individuals. A trial date has not yet been scheduled.
PPF 7800 Index shows improved funding to end of January 2021
The latest PPF 7800 Index shows that:
- the aggregate Section 179 deficit of the 5,318 eligible DB pension schemes is estimated to have decreased from a deficit of £86.4bn at the end of December 2020 to £65bn at the end of January 2021;
- the funding ratio increased from 95.5% at the end of December to 96.5%; and
- there were 3,149 schemes in deficit and 2,169 in surplus.