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Section 179 FAQs

Many of the previous Section 179 FAQs are now incorporated in our current Section 179 Guidance -  Section 179 Guidance in May 2009. Please refer to that document for further information in our Valuation Guidance section.. Future questions asked of the PPF in relation to Section 179 Valuations will be posted on this page.

What are external liabilities? (added16/7/09)
External liabilities are liabilities of the scheme that do not relate directly to the individual members. As set out in section 3.2 of our guidance for undertaking a s179 valuation, external liabilities could include items such as professional advisers’ fees which have been incurred prior to the date of the section 179 valuation but had not been deducted from the pension scheme’s asset value in the audited accounts at that date. External liabilities are not money purchase benefits, AVCs or annuities that have been secured outside the scheme.



There has been a change to the rate of revaluation in deferment of compensation for service accrued on or after 6 April 2009. Will there be a new assumption defined for revaluation in deferment for valuing this accrual? (added 19/05/09)
Yes. We indicated that we would be reviewing assumptions in April 2009. It is intended that the outcome of this review will be implemented in the autumn of 2009. The additional assumption required for valuing compensation for post 5 April 2009 accrual will be published at the same time. Please contact us if you require an assumption for carrying out a s179 valuation for a specific scheme before the new assumption is published.



There has been a change to the rate of revaluation in deferment of compensation for service accrued on or after 6 April 2009. Is the methodology used for assessing if the compensation cap applies for a s179 valuation going to be changed in light of this change? (added 11/5/2009)
No. The PPF is has carefully considered this issue and has, at the current time, decided not to make any change to the methodology to be used for s179 valuations.  This point will be kept under review.



Recent amendments were made to the Pension Protection Fund (Compensation) Regulations 2005 for schemes which do not provide any revaluation. (updated 1/7/09)

(a) When did the amendments come into force?
The amendments apply to schemes where the effective date of the section 179 valuation is on or after 1 April 2009

(b) Which schemes are affected?
The amendment only affects schemes that do not provide for any revaluation of benefits for, or in respect of, any member. If a single member receives revaluation on any part of their pension then this amendment does not apply to that scheme.

(c) What assumptions should be used for a section 179 or section 143 valuation for an affected scheme?
An appropriate in deferment assumption was prepared in anticipation of a change following the Department for Work and Pensions consultation last year and is set out in the assumptions guidance (A4 for a section 179 valuation and B3 for a section 143 valuation). 

(d) How should the compensation cap be applied for non-revaluing schemes for a s179 valuation?
To aid simplicity, it has been decided that the compensation cap for non-revaluing schemes should be applied in the same way as that which applies to schemes which grant revaluation in deferment. Details of the application of the compensation cap for revaluing schemes are set out in part 4.7 of the Guidance for undertaking a Section 179 valuation.



I recently completed a s179 valuation and submitted the relevant information on the valuation to the PPF via Exchange. Do I need to complete a s179 certificate? (added 26/3/09)
Yes. Where a s179 valuation has been completed that does not have a s179 certificate attached, you should now complete a s179 certificate. The certificate should be sent to the Trustees to be retrospectively attached to the s179 valuation report. The s179 certificate should not be sent to the PPF.



Why have you taken the decision not to adjust the current s179 and s143 assumptions? (added 9/3/09)
During the fourth quarter of 2008, meetings took place with most of the insurance companies presently active in the bulk annuity buy-out business. The aim of the meetings was to try and discover if the PPF’s current s143 and s179 valuation assumptions, which should under legislation reflect insurance company buy-out price assumptions, needed to be adjusted.

It is always difficult to compare insurance company pricing, based as it is on swaps curves or corporate bonds yield curves, with PPF pricing which is based on gilts yields which are not term-dependent. It was particularly difficult in the fourth quarter of 2008 when the normal relationships between these yields completely broke down.

With that major caveat, the Board’s conclusion was that one or two insurers appeared to be offering buy-out prices that would work out somewhat cheaper than our basis would, whilst the remainder appeared to be offering buy-out prices that were about the same or higher.

All insurers acknowledged that their pricing formula was producing very volatile prices at the time. Several insurers were refusing to guarantee prices, which undoubtedly slows up transactions which usually take many months to reach a conclusion at the best of times. Thus reportedly very few deals were being concluded in the fourth quarter. Most insurers are expecting prices to rise.

If the Board were to have changed the s143 and s179 assumptions then, following the principles established a year ago, it would have slightly weakened the assumptions (i.e. increased discount rates slightly).

The Board decided to keep the assumptions the same for the time being. This was partly because of the difficulty of drawing any firm conclusions from a market that had suddenly become thinner and significantly more volatile. It was also partly because any increase in discount rates (which would be small in any case) might have had to be fairly quickly reversed if the expected price increases materialised.

The Board has a responsibility under Regulation 6 of the Pension Protection Fund (Valuation) Regulations 2005 (SI 2005 / 672) to keep s143 and s179 valuation assumptions in line with the market. In the past, reviews have been roughly annual. Because of current market uncertainty, the Board also decided that there should be an update review around April 2009 to see if any more stable pattern of prices appears to be emerging.


How should information on s179 Valuations be submitted to the PPF?
Information contained in the s179 certificate should be submitted to the PPF as part of the annual scheme return via the Pension Regulator’s system ”Exchange”.  The s179 certificate should not be sent directly to the PPF. The PPF Board will ignore any s179 information submitted in error direct to the PPF and will not take it into account in levy calculations.

Where the annual scheme return has already been submitted it is still possible to update the s179 valuation pages of Exchange.



What version of the s179 assumptions is currently in force?
Version A4 are to be used for s179 valuations with an effective date on or after 31 March 2008.



What assumptions do I use if my s179  valuation has an effective date on or before 30 March 2008?
If your valuation has an effective date on or before 30 March 2008 you should continue to use the previous assumptions (version A3)



Do External Liabilities need to be included in Liabilities in the calculation of Estimated wind-up expenses? (added 8/1/2009)
No. Estimated wind-up expenses should be calculated as the relevant percentage of liabilities (excluding external liabilities and benefit installation / payment expenses).



Questions about submitting the valuation

When is the statutory deadline for the submission of s179 valuations?
For schemes which became registrable prior to 6 April 2007, the statutory deadline for schemes to submit their first s179 valuation is the earlier of:
a) 31 March 2008, or
b) within 15 months of the effective date of the valuation.

The effective date of subsequent s179 valuations must be no later than 3 years after the effective date of the previous s179 valuation submitted to the PPF.  S179 valuations must be provided to the PPF through the Pension Regulator’s system, Exchange within 15 months of the effective date.



When must a s179 valuation be submitted in order to it to be taken into account in the calculation of the 2011/12 levy?
Schemes wishing to submit a s179 valuation for use in their 2011/12 levy should do so electronically through the Pensions Regulator’s Exchange System by 31 March 2010

My scheme was registered on/after 6 April 2007. What do I do about submitting my s179?
The s179 needs to be submitted within 15 months of the effective date of the first s.224 valuation.

How will my levy be calculated if I fail to submit my s179 before the 31 March 2008 deadline?
Where the mandatory s179 valuation has not been submitted, the PPF will calculate the assets and liabilities used to assess underfunding for your levy invoice for 2008/09 and 2009/10 as follows:

  • the section 179 valuation as at 31/10/06 used in your 2007/08 levy invoice calculation that was obtained by converting your minimum funding requirement (MFR) valuation will be treated as if it had been submitted to us in the usual way
  • this will be rolled forward to the calculation date (31/10/07 for 2008/09 and 31/03/2008 for 2009/10) in accordance with our standard formulae, but
  • we will reduce the value of the scheme’s assets by 5 per cent for each year between the effective date of the MFR and the calculation date.



Do schemes in assessment have to complete a section 179 valuation?
If a failure notice under s122(2)(a) of the Pensions Act 2004 has been filed by a scheme on or before 31 March 2008 and has subsequently become binding, we do not  require that scheme to complete a s179 valuation.

If no s122(2)(a) notice is received and if the scheme or section has not filed its first s179 valuation by 31 March 2008, the scheme will be charged the full levy, which will be calculated applying a disincentive as described here.



Do schemes which are winding up or have wound up have to submit a section 179 valuation?
All eligible schemes were required to submit a section 179 valuation by 31 March 2008. If you believe your scheme to be ineligible for any reason, please get in touch with the PPF’s Stakeholder Support Team for more information on what to do.  



Do schemes which have had their levies waived have to submit a section 179 valuation?
Yes. A scheme which has had its levy waived still remains eligible for the PPF.  and must continue to submit s179 valuations in line with the statutory timescales.



How will the levy be calculated for a scheme which hasn’t had to submit a section 179 valuation yet?
For any scheme that becomes eligible on or before 1 April 2008, but hasn’t yet been required to file a valuation or scheme return by legislation or by the Pensions Regulator by midnight on 31 March 2008, we have the discretion to obtain any necessary information from the scheme in order to calculate the levy.

If no information is conveniently available and if it doesn’t appear to the Board of the PPF that the scheme is materially underfunded, we may determine a nil levy.




General questions

The PPF assumptions guidance derives the discount rates from yields taken from the “FTSE Actuaries’ Government Securities” series of indices.  Are these the same as the “FTSE UK Gilts” indices as printed in the Financial Times? (added 23/5/2008)
Yes, these are the same indices.  These indices are part of the FTSE family of indices, and are formally known as the “FTSE Actuaries Bond Indices for British Government Securities”.  They are currently printed in the Financial Times under the heading “FTSE UK Gilts”, and are listed on the Institute and Faculty of Actuaries’ website under the same name.



In your section 143 / 179 assumptions guidance you stipulate that the PCMA00 and PCFA00 tables should be used for mortality before retirement.  Is this appropriate given that below age 50 the mortality rates in these tables relate primarily to the experience of ill-health pensioners?  Should not PNMA00 and PNFA00 be used instead? (added 27/5/2008)
In our view the Combined (C) tables somewhat overstate the mortality of pension scheme members before retirement and the “at or over Normal Retirement age” (N) tables would somewhat understate it, partly owing to the fact that below age 65 the rates in the N tables are derived by blending the graduation into the assured lives table.  Our analysis indicates that there is little difference (usually less than 1% in the overall funding level) between using the C tables and the N tables in deferment. We have come down in favour of the C tables rather than the N tables because the C tables would give the lower s143 liabilities figure, and one of the principles underlying the selection of the section 143 assumptions is erring on the side of understating the liabilities in circumstances where there is a range of possible answers for a scheme. The effect of this principle is that schemes whose section 143 valuation funding level is close to 100% have a slightly greater chance of being able to test the buy-out market to see if they can buy out better than PPF levels of benefits.



Your section 143/179 assumptions guidance sets out that the PCMA00 and PCFA00 mortality tables should be used in deferment.  These tables derive from the CMI’s Working Paper 22 (WP22) and these started at age 50.  These tables were subsequently extended to ages beneath 50 in WP26, although this paper was not formally adopted by the profession.  Please could you confirm that it is the extension shown in WP26 that you intend to be used? (added 27/5/2008)
Yes, the mortality rates shown in WP26 should be used beneath age 50.


How do I allow for the compensation cap when valuing the protected liabilities for a section 179 valuation undertaken in accordance with version G4 of the section 179 guidance where a non-pensioner has tranches of compensation with different NPAs?
Where a member has tranches of benefit with different NPAs, each tranche should be restricted based on the compensation cap at the latest NPA.  The benefit for each tranche should be reduced on a pro-rata basis based on the compensation cap that applies at the effective date at the valuation.  The cap does not need to be projected to NPA nor compensation reduced when later tranches come into payment (unlike a s143 valuation).

Here is an example to illustrate how it should work (using sample values for the compensation cap).

Member aged 50 at effective date of valuation

Scheme benefit at effective date of valuation (£p.a.) of

Tranche A (pre 97) NPA 60           £20,000 p.a.
Tranche B  (pre 97) NPA 65          £8,000 p.a.
Tranche B (post 97) NPA 65        £15,000 p.a.

Compensation cap in force at effective date of valuation

For age 65 (latest NPA)   £29,000 p.a.

% cap used = (20,000 + 8,000 + 15,000)/29,000.00 = 148.28%

Amounts (all as at effective date of valuation) of compensation after application of 90% and compensation cap:

Tranche A (pre 97)
Payable from age 60 (pre 97) = 20,000 x 90% / 148.28% = £12,139.20

Tranche B (pre 97)
Payable from age 65 (pre 97) = 8,000 x 90% / 148.28% = £4,855.68

Tranche B (post 97)
Payable from age 65 (post 97) = 15,000 x 90% / 148.28% = £9,104.40

This compensation can then be valued using the net discount rates in deferment as prescribed in the s179 guidance.



When the section 179 valuation guidance changed from G3 to G4, the need to value certain benefits (such as death before retirement lump sum benefits) was lost.  Does this mean that we can also exclude these benefits (such as death before retirement lump sum benefits) from the cost of accrual (item b) in the Actuarial Certificate of Deficit Reduction Contributions (“ACDRC”) calculation?
The ACDRC guidance (section 2.6) refers to the cost of accrual of scheme benefits (item b), subject to the adjustments described in section 4.1 of the Section 179 guidance.  However, it is the intention that other aspects of section 4 of the Section 179 guidance are also taken into account when calculating the cost of accrual for ACDRC purposes.  In particular, details of the death benefits provided in section 4.8 should be taken into account for this calculation, such as the inclusion of the 50% spouse’s pension (section 4.8.1) and the choice to exclude pre-retirement lump sum death benefits (section 4.8.2).



How do I allow for the compensation cap when valuing the protected liabilities for a section 179 valuation undertaken in accordance with version G4 of the section 179 guidance where a non-pensioner has tranches of compensation with different normal pension ages (“NPAs”) and the member is currently between NPAs?
The compensation cap does not apply to tranches of benefit where the member is aged above the normal pension age (“NPA”) for that tranche.

The compensation cap will still apply to tranches of benefit with NPAs in the future; each applicable tranche should be restricted based on the compensation cap at the latest NPA. The benefit for each tranche should be reduced on a pro-rata basis based on the compensation cap that applies at the effective date at the valuation.  The cap does not need to be projected to NPA nor compensation reduced when later tranches come into payment (unlike a s143 valuation).

Here are examples to illustrate how it should work (using sample values for the compensation cap) for a member aged between the NPAs of 60 and 65 e.g. 62.

Example A. Scheme benefit at effective date of valuation of

Tranche A (pre 97) NPA 60           £20,000 p.a.
Tranche B (pre 97) NPA 65          £8,000 p.a.
Tranche B (post 97) NPA 65        £15,000 p.a.

Compensation cap in force at effective date of valuation: for age 65 (latest NPA)   £29,000 p.a.

Tranche A
Payable from age 60 (pre 97) = £20,000 payable immediately, i.e. no reduction to a 90% level of compensation, no compensation cap restriction;

Tranche B
% cap used = (8,000 + 15,000)/29,000 = 79.31%

The benefit under tranche B would not exceed the compensation cap at age 65 so would not be restricted, only reduced to a 90% level of compensation.

(pre 97)
Payable from age 65 (pre 97) = 8,000 x 90% = £7,200.00

(post 97)
Payable from age 65 (post 97) = 15,000 x 90% = £13,500.00



Example B. Scheme benefit at effective date of valuation of

Tranche A (pre 97) NPA 60           £8,000 p.a.
Tranche B (pre 97) NPA 65          £20,000 p.a.
Tranche B (post 97) NPA 65        £15,000 p.a.

Compensation cap in force at effective date of valuation for age 65 (latest NPA) = £29,000 p.a.

Tranche A (pre 97)
Payable from age 60 (pre 97) = £8,000 payable immediately, i.e. no reduction to a 90% level of compensation, no compensation cap restriction;

Tranche B
% cap used = (20,000 + 15,000)/29,000 = 120.69%

(pre 97)
Payable from age 65 (pre 97) = 20,000 x 90% / 120.69% = £14,914.24

(post 97)
Payable from age 65 (post 97) = 15,000 x 90% / 120.69% = £11,185.68

This compensation can then be valued using the net discount rates in deferment as prescribed in the s179 guidance.



I am preparing a section 179 valuation under Guidance version G4. If my scheme does not provide a contingent spouse’s pension do I need to value one for my section 179 valuation?
Paragraph 4.8.1 of our valuation guidance (version G4) sets out that “contingent spouses’ benefits that are to be valued should be based on 50% of the members’ scheme benefits…”  Paragraph 4.1 defines what ‘benefits that are to be valued’ means in this context: “the benefits to be valued are the scheme benefits, but taking into account the adjustments contained in the four bullet points below [concerning pension increases, the compensation cap and the 10% reduction]”.

This means that if your scheme does not provide any contingent spouse’s pension then you do not need to include any in your calculation of the protected liabilities.  If, however, you would prefer to allow for a contingent spouse’s pension in the value of the protected liabilities (for example, if doing so would simplify your calculations) then you would be permitted to do so for section 179 purposes.

Note that whether spouses’ compensation is payable is determined at scheme level.  So, for example, if spouses’ pensions are only provided within the scheme for certain members, on entry to the PPF all members would be entitled to spouses’ compensation and therefore this should be reflected in the section 179 valuation.
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