There are three main things trustees need to consider when it comes to re-execution of contingent assets, explains Giles Bywater, a pensions partner at law firm Mayer Brown.
Three types of contingent asset are recognised by the PPF for this purpose:
If you have not already done so, you should start planning re-execution now to ensure you meet the deadlines
Type A – group company guarantee.
Type B – security over cash, UK real estate or securities.
Type C – letter of credit/bank guarantee.
If you are an employer or a trustee who uses a Type A or Type B contingent asset to reduce your scheme’s PPF levy, there are three main things you need to know about the 2019-20 levy.
Make sure you meet new PPF requirements
First, your Type A and Type B contingent assets probably require re-execution.
Contingent assets need to be certified to the PPF every year if they are to be used to reduce the PPF levy. To be capable of certification, they must meet strict PPF requirements – including being executed using the PPF’s standard form documentation.
Last year, the PPF issued new standard form documentation for Type A and Type B contingent assets. Among other things, changes were made to the way in which the liability of the guarantor or security-giver can be capped.
As a result, the PPF is requiring re-execution of any existing Type A or Type B contingent asset that includes a fixed cap on the liability of the guarantor or security-giver.
If not re-executed, the contingent asset will continue in force – but it will not be taken into account in calculating the scheme’s 2019-20 PPF levy.
Second, along with your re-executed contingent asset, you will need to submit other documentation to the PPF.
A contingent asset that has been re-executed for the 2019-20 PPF levy will need to be submitted to the PPF with the same documentation and confirmations as for “new” contingent assets.
However, the PPF will accept “refreshed” versions of existing legal opinions and of some guarantor strength reports and financial reviews.
Start planning re-execution now
Third, you will need to meet strict deadlines for submission to the PPF.
All required online documentation and confirmations for the 2019-20 PPF levy must be submitted to the PPF by midnight on Sunday March 31 2019.
The accompanying hard-copy documentation must reach the PPF by 5pm on Monday April 1 2019.
The PPF has written to trustees of schemes that have certified Type A or Type B contingent assets in the previous five years to advise them of the re-execution requirement. However, employers may not yet be aware.
If you have not already done so, you should start planning re-execution now to ensure you meet the deadlines.
Giles Bywater is a pensions partner at Mayer Brown
