Following its consultation earlier this year on the calculation of levies for the three years commencing with the 2015/16 year, the PPF has now published its response to the consultation, including further detail on the quantum of next year’s levy. The earlier consultation focussed on the design of the levy framework – which affects the distribution of the levy between schemes. The new consultation covers factors that will affect the absolute amount of levy that schemes will pay and runs until 13 November.
In particular the PPF has announced that the total amount of levy that it aims to collect next year is £635 million, representing a reduction of nearly 10% from the 2014/15 levy. It expects further that the levy will continue to fall over the following two years.
The levy scaling factor applied in the calculation of the risk-based levy will be 0.65 for the next three years (0.73 for the previous three years) and the scheme-based multiplier will be 0.000021 (0.000056 for the previous three years).
Experian and insolvency risk calculation
One change made to the Experian model relates to the recognition of company data. Previously there was a hierarchy that preferred data submitted to Companies House, and sourced therefrom by Experian, to data submitted directly by the company. This meant that companies filing abbreviated accounts could not then submit full accounts to Experian for PPF levy purposes. This has been changed so that the model will always prefer more complete data.
A further change is that secured charges, such as mortgages, which up until now have all been counted as increasing risk, will be categorised, with certain categories being disregarded when calculating the age of the most recent charge. Those that will be disregarded include charges in favour of the pension scheme, rent deposit deeds and refinancing of an existing arrangement on better terms. Scheme trustees will be responsible for certifying to Experian, by 31 March 2015, that certain charges are eligible for exclusion.
There will still be 10 levy bands arising from the insolvency scores of sponsoring employers. The top 20% of employers will be in band 1, 10% in each of bands 2 to 8 and 5% in each of bands 9 and 10. However, as a result of some of the other changes, the boundaries between the bands and the resulting levy rates have changed since the earlier consultation. While the effect is to increase some of the levy rates, the effect is offset largely by a reduction in the scaling factor from that envisaged in the May consultation.
Experian scores will start being recognized in the calculation of the PPF levy from 31 October 2014. The scores used in the 2015/16 levy calculation will be based on an average over 6 months, rather than 12 months.
The PPF has confirmed that it will not offer transitional protection to those schemes facing significant increases in their levy as a result of the move to Experian. Instead it is encouraging trustees and their advisers to access the online portal early so that they can budget for any increase expected in next year’s levy. The risk-based levy will continue to be capped at 0.75% of a scheme’s protected liabilities.
An online portal for employers has been available since 8 September. The online portal for trustees was re-launched on 7 October. Changes include:
- Experian is now able to obtain data from more sources;
- improvements in the process for identifying ultimate parent companies and
- the exclusion of certain types of mortgage, as noted above.
Asset-backed Contributions
The PPF had proposed limiting the recognition of asset-backed contribution (ABC) arrangements to property-based ABCs. However, in response to the feedback it has received, it now accepts that other types of ABC should also be allowed, although it will proceed with its proposal to restrict the value placed on ABC arrangements, to reflect likely reductions in value in the event of employer insolvency.