PPF valuation guidance updated
The Pension Protection Fund has updated its suite of valuation guidance notes, mainly to reflect the European Court of Justice’s Hampshire and Bauer judgements in the light of the Retained EU Law (Revocation and Reform) Act 2023 (the REUL Act) and regulations that were made as a direct consequence of this Act.
The REUL Act provided for EU case law decided before the UK left the EU to lose its efficacy in the UK from the end of 2023 unless regulations were made to the contrary.
The Pensions Act 2004 (Amendment) (Pension Protection Fund Compensation) Regulations 2023 (see Pensions Bulletin 2023/37) retain the effect of the Hampshire judgement for schemes entering PPF assessment after 31 December 2023 by incorporating into the Pensions Act 2004 a requirement that the value of PPF compensation must be at least 50% of the value of the benefits the person would have been entitled to under the rules of the original scheme.
By contrast, no action was taken to retain the effect of the Bauer judgement, which would have required the PPF to provide a minimum level of benefit so that the member would not have to live below the at-risk-of-poverty threshold.
The new suite of guidance allows for the “50 per cent value test” in section 143, 152 and 156 valuations from 1 January 2024. For section 179 valuations, given its purpose is primarily to distribute levies among schemes rather than to establish whether the scheme has assets sufficient to cover PPF compensation liabilities, the PPF permits schemes not to make any adjustments for this value test. These are the same treatments as before the Hampshire judgment was written into UK legislation.
The new suite also provides that no allowance should be made for the Bauer judgment for section 143, 152 and 156 valuations where the assessment date falls on or after 2 January 2024, in accordance with the REUL Act. This is a change from the previous approach where the effect of Bauer was to be considered if it could make a difference to the conclusion of these entry valuations. Insofar as section 179 valuations are concerned, the PPF has to date, given the above purpose of such valuations, not required any allowance for the Bauer judgment, and the new section 179 valuation guidance continues this approach, but because no account now has to be taken of this judgment.
The PPF has also updated its section 143 information note to reflect how the Hampshire, Hughes and Bauer judgments should be taken into account in such valuations.
The suite of guidance must be used for valuations with an effective date on or after 1 January 2024, and for section 179 valuations, signed on or after 17 January 2024.
Comment
While expected this tidying up of PPF material is still useful as there is now certainty on how schemes should take these EU court cases into account going forward.
FRC publishes refreshed Corporate Governance Code
The Financial Reporting Council has published an updated version of its UK Corporate Governance Code, rowing back on its consultation proposals issued in May 2023 (see Pensions Bulletin 2023/22) in favour of a more limited number of changes, as it signalled it would in November (see Pensions Bulletin 2023/44).
Amongst the proposals dropped are those relating to the role of audit committees on environmental, social and governance issues, expanding diversity and inclusion expectations, over-boarding provisions, and expectations on Committee Chairs’ engagement with shareholders.
As proposed, there are no changes to the Code’s expectations for directors’ pensions.
The updated Code comes into force for accounting years commencing on or after 1 January 2025, with a new Code expectation relating to Boards making a declaration in their annual reports about how they have reviewed the effectiveness of their risk management and internal controls framework and their conclusions applying a year later.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
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