PPF consults on plans for next three years’ levy

Introduction

On 29 May 2014, the PPF published a consultation on the second “PPF Levy Triennium”.

The new triennium will run from 2015 and will cover the levy years 2015/16, 2016/17 and 2017/18.  As for the first triennium, the PPF plans to establish a framework for the three year period.

In this Alert:

• Key points 
• Measurement of insolvency risk
  
• Data collection
  
• Transitional protection?
  
• Customer service
  
• Other changes
  
• Key dates
• Next steps
  

Key points

• The PPF is proposing a move to a new, PPF specific, model for measuring employer insolvency risk for the levy years 2015/16 onwards.
• The new approach will lead to a redistribution of the levy so schemes should be prepared for a change in their invoice.
• The PPF is proposing changes in relation to contingent assets and asset backed contributions (“ABCs”).  The changes are designed to ensure that the levy reduction given is commensurate to the reduction in risk which the contingent asset or ABC provides.

Measurement of insolvency risk

The PPF specific model for measuring insolvency risk is based solely on information about sponsors of DB pension schemes and, as such, is focused on those variables that are most predictive for this particular group of entities.

From the 2015/16 levy year onwards, an employer’s insolvency risk will be assessed, by Experian, using one of eight scorecards:

• Independents: Small Accounts
• Independents: Full Accounts
• Group Members: Full Accounts, less than £10 million turnover
• Group Members: Full Accounts, £10 million to £50 million turnover
• Group Members: Full Accounts, £50 million to £500 million turnover
• Group Members: Small Accounts
• Group Members: Consolidated Accounts / Large Company
• Not for profit

To help maximise predictability these new scorecards have far fewer components and are very largely driven by financial data (see the Annex to the Consultation for details).  Where an employer is part of a group, a key feature is the inclusion of a component based on the strength of the wider group (assessed by reference to the consolidated accounts of the ultimate parent company).

The new model is intended to lead to improvements in transparency.  D&B’s Failure Score could not be shared with levy payers but, in the future, the PPF’s levy rules will explain the basis on which scores are calculated.

With the aim of increasing accuracy, the PPF is considering the introduction of an override for entities with a credit rating (based on ratings provided by any of the market leading Credit Rating Agencies). The PPF specific score would be replaced by a score calculated by using the default insolvency probability implied by the rating.

Data collection

An employer’s insolvency score will be generated using financial information from a range of sources, such as Companies House (or an overseas equivalent), the Charity Commission and information provided through TPR’s Exchange.  Any employers which do not file their accounts with Companies House or the Charity Commission are encouraged to supply them to Experian voluntarily.  In the absence of this Experian may not be able to source the relevant data to provide a PPF specific score.

In addition, ultimate parent companies are encouraged to provide Experian with a set of audited accounts so that it can assess the “parent strength score”.

To enable levy payers to understand how the monthly scores are calculated and to check that data is correct, scores for the 2015/16 levy will only be collected from 31 October 2014.

Transitional protection?

Customer service

Other changes

• Requiring trustees to certify a fixed amount which the guarantor could pay if called upon, and revising the wording of the trustee certification accordingly
• Adjusting guarantor scores to reflect the value of the guarantee they are potentially liable for.

Key dates

Next steps

The consultation, to which we will be responding, closes on 9 July 2014.

The PPF will use scores from 31 October 2014 in the levy calculations for 2015/16.  Trustees and employers therefore have until then to access the online portal, verify the information being used and assess whether action can be taken to improve scores.  We would advise taking action sooner rather than later to ensure any changes are effective before October.

Schemes with Type A contingent assets or ABCs and schemes that are reporting as LMSs should monitor developments.  They may also wish to assess the implications of the proposals and whether they can take steps that will assist in managing the impact of the changes.

If you have any questions, please speak to your usual contact at Sackers.