Types of contingent assets
There are three types of contingent asset arrangements which – providing certain requirements are met – can reduce the amount of risk-based levy your scheme will pay:
Type A: Guarantees from a parent or group company
Type B: Cash, UK real estate and securities
Type C: Letters of credit and bank guarantees
Type A contingent assets
These are guarantees from a parent or associated companies that may become due in the event of employer insolvency or failure to make agreed contributions.
This type of arrangement can reduce the levy you’re charged by adjusting the insolvency risk calculation if the guarantor has a lower insolvency risk score than the scheme employer(s).
Type B and C contingent assets
These types of assets are those, such as property or investments, promised to the pension scheme if the scheme’s sponsoring employer becomes insolvent or fails to make their agreed contributions.
Both these types of arrangements can reduce the levy you’re charged by reducing the scheme’s underfunding amount.
As contingent assets can reduce the risk of the scheme transferring to us, they can also reduce your levy payment. They can also reduce the impact on members if an employer becomes insolvent.