Pensions - Articles - PPF launches consultation on determining levy payments


 The Pension Protection Fund has launched a consultation on the introduction of a new, PPF-specific insolvency risk model for determining levy payments, developed with Experian, and drawing on input and expertise from the pensions industry and employers’ representatives.

 The consultation paper sets out details of the proposed new model, and analyses anticipated changes to levy bands and rates. Following extensive discussions with industry representatives, the PPF-specific model aims to provide much greater precision and discriminatory power in assessing employers’ insolvency risk, and reflects more accurately that the PPF employer universe is very different to the broader UK corporate landscape that generic models look at.

 The bespoke model has been independently assessed against nine success criteria identified by the PPF’s Industry Steering Group, and found to be as effective as more generic models in four of them, and superior in five, including the ability to predict insolvency. It is expected that the new scores will not be used until October 2014 to calculate the levy from 2015/16 onwards, reflecting the PPF’s commitment to allow schemes ample opportunity to understand and, where necessary, challenge scores, before they are used.

 PPF Executive Director of Financial Risk, Martin Clarke, said:

 “We believe the new insolvency model will ultimately provide more discriminative and robust insolvency risk scores, plus offering greater transparency and access to levy payers. But we are determined that levy payers should be an integral part of this change, which is why which is why we are consulting and allowing levy payers time to understand the new model, to check the information held on them and familiarise themselves with their predicted levy.

 “The PPF looks forward to engaging with levy payers and other stakeholders over the coming months to ensure the new model is fully integrated and delivering greater accuracy and transparency in assessing insolvency risks.”

 Paul Vescovi, Managing Director for Experian Credit Services, commented:

 “The model we have created offers a more accurate assessment of insolvency risk score as for the first time it has been calculated using historical insolvency data from the universe of PPF employers. It uses variables demonstrated to be most predictive and appropriate for businesses that have eligible defined-benefit pension schemes. We will be working closely with the PPF in the upcoming weeks to provide support for levy payers by helping them understand the new score and what it means for them.”

 In addition to its own internal analysis of the proposed changes, the PPF also engaged PwC to provide assurance that the model represents best practice, as well as sharing information on the model, the PPF’s own analysis and PwC’s conclusions with the PPF Industry Steering Group.

 The new methodology is not designed to change the aggregate amount of levy raised. The PPF’s impact assessment, however, anticipates a significant reconfiguration of around £230 million within the total levy raised, with more levy payers seeing a fall in their levy than an increase. The consultation paper seeks views on whether schemes facing significant increases in their levy should be afforded some form of transitional protection, and what form that might take.

 In addition to the adoption of the PPF-specific model the consultation also proposes new approaches for the treatment of Asset Backed Contributions, parental guarantees and associated last man standing schemes for levy purposes.

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