The following Pensions guidance note provides comprehensive and up to date legal information covering:
A contingent asset is an asset that will generate cash for the pension scheme if certain specified (ie contingent) events occur (eg a sponsoring employer experiencing an insolvency event).
Pension schemes generally use contingent assets in two main ways:
to reduce the amount of levy (more specifically, the risk-based levy) payable annually by the scheme to the Pension Protection Fund (PPF). To be used for this purpose, the contingent asset must reduce the risk of compensation payable by the PPF in the event of the insolvency of the sponsoring employer, and
as a form of security for the funding of the pension scheme (eg to address concerns about the sponsoring employer's covenant towards the scheme)
The PPF recognises three types of contingent assets which may be used to reduce the PPF’s risk-based levy:
guarantees from a parent or group company (Type A)
security over cash, real estate or securities (Type B(i) (ii) (iii)), and
letters of credit or bank guarantees (Type C(i) or C(ii))
This Practice Note looks at how schemes can use contingent assets to reduce the risk-based levy payable to the PPF.
For further information on contingent assets in the context of funding and the employer's covenant, see Practice Note: Assessing and monitoring the employer's covenant.
For further information on the PPF levy, see Practice
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