Your scheme may be able to reduce its levy by certifying Deficit Reduction Contributions (DRCs) using a simplified certification process.
This simplified certification – referred to in our rules as Option Beta – can be completed by a scheme trustee or a company Director rather than requiring an actuary. It can be used to record all the recovery plan payments made since the scheme’s most recent s179 valuation.
Who can benefit from simplified certification?
In summary, schemes that have all of the following features:
- s179 liabilities of less than £10 million
- closed to benefit accrual and salary linkage
- a recovery plan
What is simplified certification?
In order for recovery plan payments to be recognised in the PPF levy, schemes usually need an actuary to carry out separate DRC calculations alongside their scheme return. This is known as Option Alpha in our rules.
To make things easier for smaller schemes, simplified certification was introduced to allow qualifying schemes to certify payments made under recovery plans without the need for additional actuarial calculations.
If you carry out the certification by the deadline at the end of April, this could lead to lower levy charges for your scheme when we invoice from September this year. This is because one of the factors used to calculate the PPF risk-based levy is the amount of underfunding (deficit) that a scheme has. This is shown as U on the levy invoice. The amount of underfunding and therefore the risk-based levy can be reduced if DRCs are certified to us.
How much could this save?
The circumstances of each scheme will be different, but as an example we modelled a hypothetical scheme with underfunding of £1.2 million, which has received 30 monthly contributions of £10,000 under its recovery plan since a s179 valuation with an effective date of 30/09/18. If the total recovery plan contributions of £300,000 are certified as DRCs under Option Beta, this would reduce the scheme’s underfunding by 25 per cent and would generally be expected to reduce the risk-based levy by the same proportion.
How to certify?
You can certify using the Pension Regulator’s (TPR’s) Exchange online service.
Simply: add a certificate in the DRC section; input the date of your most recent s179 valuation; enter the amount of recovery plan contributions (up to £1 million); select ‘Option Beta (actuarial certification does not apply)’ from the drop-down list; and submit the certificate.
The amount being certified can be a cumulative sum of payments made for the period from the s179 valuation date up to the end of the month before the certificate is submitted.
Scheme trustees or directors of a sponsoring employer (or another ‘appropriate person’) of schemes that meet the criteria summarised above and set out in full in the DRC Appendix can certify recovery plan payments up to £1 million.
If you want to certify more than this, or to allow for special contributions that aren’t included in your recovery plan, you will need to ask your Scheme Actuary to carry out the calculations.
You can find out more in our guidance on certifying DRCs.
What if you can’t use simplified certification?
If you don’t meet the requirements for simplified certification (or choose not to use it), DRCs can be certified by all schemes using Option Alpha. You will need to ask an actuary to carry out the calculations, although this doesn’t have to be your Scheme Actuary. You can find full details on certifying under either option in the DRC Guidance and Appendix.
When do I need to certify by?
The deadline for certifying DRCs under either option so that we can take them into account in your 2023/24 levy is 5pm on 28 April 2023.
You can keep track of other deadlines using our levy timeline.