On 29 May the PPF published its consultation on the calculation of levies for the three years commencing with the 2015/16 year. This consultation focusses on the design of the levy framework – which affects the distribution of the levy between schemes. There will be a further consultation in the Autumn, covering the PPF’s estimate of the amount of levy it expects to collect and the scaling factor to be applied in the calculations. Those decisions will affect the absolute amount of levy that schemes will pay.
The PPF has tried to maintain stability as far as possible and the main design change by far is the implementation of its new insolvency model in association with Experian.
Experian and insolvency risk calculation
The PPF and Experian have been developing a model to measure insolvency risk that is specific to companies with defined benefit schemes – ie those companies whose schemes present a risk to the PPF. Such companies tend to be both larger and longer-established than the majority of UK companies. The Experian model will give rather less weighting to non-financial items than did the previous Dun & Bradstreet model and is expected to be far more predictive of insolvency.
However, there has been a delay in the development of this model, as a result of which Experian will not start collecting data for its scores until the end of October 2014. Thus the scores used in the 2015/16 levy calculation will be based on an average over 6 months, rather than 12 months.
Experian will capture financial information from a range of sources, including Companies House, overseas equivalents and the Charity Commission. Because the new model is specific to the PPF, the scores produced will not be directly comparable with Experian’s Commercial Delphi scores – so the latter will not be a reliable guide to companies’ PPF insolvency scores.
There will still be 10 levy bands arising from the insolvency scores of sponsoring employers (although there is an alternative proposal mentioned which would involve only 8 bands). The top 20% of employers would be in band 1, then there would be 10% in each of bands 2 to 8 and 5% in each of bands 9 and 10. Those remaining in band 1 should see a small reduction in their levy (all other things being equal) under the 10-band proposal.
Approximately £200 million of levy is expected to be redistributed as a result of the change to Experian’s model. About 50% more schemes will see a reduction as will see an increase, from which one can deduce that the increases will be larger than the reductions! The PPF is minded not to offer transitional protection, although it has raised the possibility of protection for 2015/16 only, for those whose 2014/15 levy would have been at least 3 times higher under the Experian model.
There is a new online facility to enable schemes to find out the scores of their sponsoring employers. This is now live and employers are encouraged to use it to check that the correct information has been collected and that scores are accurate. Initially access is available only to trustees: trustees should ensure that the data submitted on Exchange (the Pensions Regulator’s data collection portal) are up-to-date, including contact details for the scheme’s levy contact. Trustees will then receive an email from the PPF, allowing them to access the online facility and to associate other parties, such as their advisers and sponsoring employers, to their scheme.
Other changes
The PPF is considering also more minor changes affecting:
- schemes with type A contingent assets,
- schemes with an asset-backed contribution (ABC) arrangement and
- multi-employer “last-man-standing” schemes.
The consultation runs until 9 July. As noted earlier, there will be a further consultation in the Autumn, covering the scaling factor and the amount of levy to be collected. The final levy determination will then be published in December.