PPF publishes updated valuation guidance

The Pension Protection Fund (PPF) has published updated valuation guidance to reflect the Hampshire and Bauer judgments, and the disapplication of the PPF compensation cap.

It has also updated its information note for carrying out a section 143 valuation and published a new information note in relation to the Hampshire, Hughes and Bauer judgments in a section 143 valuation.

The court rulings have resulted in a number of changes, with the Hughes Court of Appeal judgment confirming in July 2021 that the PPF compensation cap should be disapplied.

The PPF explained hat as the PPF compensation cap no longer applies for any period, the compensation cap must not be used in the calculation of PPF compensation in s143, s152, s156 or s158 valuations.

The PPF also noted that the Hampshire and Bauer judgments could give rise to additional PPF compensation.

It explained that a scheme only transfers to the PPF if its s143, s152 or s158 valuation shows that it’s underfunded, emphasising the importance of establishing whether the impact from these judgments would move the valuation from an overfunded to an underfunded position.

The new information note therefore clarifies how this should be done, although the PPF warned that the the accuracy of the approach is dependent on the scheme’s funding position before making any such allowances.

The updated s179 valuation guidance, meanwhile, confirms the PPF’s previous interim position that no allowance needs to be made for the impacts of the Hampshire or Bauer judgments.

“This is because s179 valuations are used primarily to distribute levies among the schemes in our universe, which necessarily involves some approximations,” the pensions lifeboat stated.

“We’ve taken a proportionate approach and consider that the additional burden on the industry to calculate the impact of these judgments would not be justified by the relatively modest redistribution of levy likely to result.”

The new versions of the valuation guidance and information notes came in to effect on 1 December 2021, with schemes and advisers who are in the process of carrying out s143, s152 or s156 valuations under an earlier version of the relevant guidance encouraged to discuss the approach with their usual PPF actuarial contact.

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