The Pension Protection Fund (PPF) has consulted with the Pension Bond Association (PBA), part of the Gateley Surety Academy, to update guidance on standard form contingent assets, which provide security and reduce the risk based PPF levy.
This is good news for the surety industry because the updated guidance clarifies that an issuer of a demand guarantee in favour of trustees:
- might prefer to include express provisions on their ability to investigate the question whether or not a demand is fraudulent;
- will typically be subject to financial strength measures rather than a credit rating metric; and
- is likely to be regulated and approved by the Financial Conduct Authority (FCA).
Pensions partner at Gateley Plc and President of the PBA, Patrick Kennedy, said: “The PBA’s objective is to promote knowledge and understanding of demand guarantees in the context of UK pensions and therefore we welcome this guidance. I am confident that it will assist schemes and their advisers when considering amendments to the standard forms.”
Although the arrangements are highly confidential, the UK surety market supports more than a billion pounds worth of defined benefit scheme liability through demand guarantees, which are a PPF Type C contingent asset.
Construction partner Emlyn Hudson added: “The surety community welcomes this guidance and whole-heartedly supports it as it will help the surety market bring added security to UK pensions.”
The PPF encourages defined benefit pension scheme sponsors to provide contingent asset support to ensure schemes are fully funded or at least funded above the level at which they might fall into the PPF in the event of employer insolvency and therefore this guidance adds further security to the process.