Consultants have dismissed attempts by the UK’s lifeboat fund to extend a duty of care on services provided to schemes operating asset-backed contribution (ABC) products.
Wording in the latest Pension Protection Fund (PPF) consultation caused concern among advisers as ABC structures would require independent valuation recognising a legal duty of care to the PPF.
This would have to be provided by the advisory community and places additional legal strain on those providing services to schemes.
ABC structures involve sponsors giving schemes legal claim over an asset that provides income streams in return for a reduction in deficit contributions.
The use of these structures can potential reduce the liability burden of a scheme entering the PPF, thus reducing the levy.
In October, the PPF launched its final consultation on changes to the PPF levy formula, as new insolvency-risk score provider Experian takes over from 2015.
The Association of Consulting Actuaries (ACA) said it was concerned by the consultation and surprised by the lifeboat fund’s attempt to extend the legal duty of care.
“We would prefer to maintain the existing chain of accountability through the trustees,” the organisation said.
“As a minimum, the maximum extent of any liability would need to be made clear. Typically, there is a liability cap in the agreement between advisers and trustees. It would not seem appropriate for advisers to have an uncapped liability to the PPF.”
Towers Watson, a consultancy, also raised concerns about the PPF’s move.
Joanne Shepard, senior consultant at the firm, said it could potentially undo a lot of good work.
“Extending each adviser’s liability is unnecessary – there is already a duty of care and liability to the trustees [whose role the PPF assumes on insolvency] or sponsor,” she said.
“Subject to legal opinion, extending each adviser’s duty of care to the PPF may not always be unachievable – in which case, perfectly good assets would not be recognised for levy purposes.”
Aon Hewitt called on the PPF to clarify its stance on the extension.
“Will the accounts value of an ABC be subject to scrutiny by the PPF, with any attaching advice needing to be explicitly relied on by the PPF Board, despite this being an audited figure?” it asked.
The ACA also raised concerns over new provider Experian’s ability to interpret a sponsor company’s annual accounts.
It said where companies had not clearly defined ‘capital employed’ or ‘current liabilities’, Experian could not calculate figures, and thus set them as zero and skew the scoring.
The ACA called for Experian to be allowed to use its judgement to approximate data items set by the PPF’s criteria.
This is the lifeboat fund’s final consultation before Experian takes over from Dun & Bradstreet (D&B) for the 2015-16 levy calculation.
The move to Experian has been beset by delays, as the lifeboat fund wanted to create a bespoke insolvency risk score after significant complications with D&B in its eight-year relationship.
This article originally and mistakenly said the PPF could provide transitional arrangements for levy-payers buyt his has since been ruled out by the fund. Apologies for any inconvenience.