The proposals have been developed in partnership with Experian following engagement with stakeholders over the last three years, most recently through an industry steering group. Alongside a number of wider suggested developments, the proposals focus on two ways in which the PPF plans to develop the approach to measuring insolvency risk.
David Taylor, PPF General Counsel, said: “This consultation sets out our proposals to improve the way we calculate levies for the next three years starting in 2018/19. We know that stability is important to our levy payers, so we have only proposed changes where we believe there is a compelling case to do so. This reflects our view – supported by feedback – that overall the current levy framework is working well. Nonetheless, we have conducted our own detailed review, and carefully evaluated all the feedback received from levy payers and other stakeholders, including the important points raised in the recent Work and Pensions Select Committee report. This process has led us to propose a number of important improvements on which we are keen to receive views from stakeholders.”
Firstly, the consultation outlines proposals to revise how employers are allocated to scorecards, introduce two new scorecards and rebuild existing scorecards where the predictive power has been weaker. These changes aim to improve the predictive power and ensures scorecards are better tailored to company size resulting in SMEs and ‘not-for-profits’ paying levies that better reflect their risks.
Secondly, the consultation proposes to adopt the use of credit ratings for some of the largest employers and a specific methodology for regulated financial services entities. This will ensure the best possible assessment of insolvency risk for some of the largest levy payers.
David Taylor said: “We believe our proposals lead to a more accurate assessment of insolvency risk. We expect almost two thirds of schemes to see a reduction in levies. Some schemes – particularly some of those with very large employers – would see an increase, but smaller employers would, in aggregate, see reductions in levy.”
The consultation document also seeks views on a number of other areas including those suggested by the Work and Pensions Select Committee in its 2016 report, such as the possibility of a levy discount for good governance, and reducing the administrative burden for smaller schemes.
Another area where the PPF seeks views is on the benefits of continuing with monthly scores or moving to an assessment at 31 March each year from 2018. Scores will only be measured, at the earliest, from October 2017 for the first year of the triennium.
David Taylor added: “I am looking forward to hearing our stakeholders’ views on the proposals in this document. Their feedback is tremendously important and we are grateful for our levy payers’ continuing engagement. I’m particularly grateful for the ongoing assistance, and challenge, of our industry steering group in this process. I’d encourage all those with an interest in our proposals to register for one of our events and, from Monday, view the implications for their scheme and its employers on the Experian portal.”
There will be a second consultation in the autumn, setting out the conclusions and seeking input as to how these have been reflected in the levy rules for 2018/19.
While this consultation relates to the 2018/19 levy year onwards, schemes and employers are reminded of the imminent deadlines for the 2017/18 levy year. The PPF will publish the final rules for 2017/18, including a levy rule for new arrangements without a substantive employer, by 31 March 2017.
The full consultation document can be found here. The consultation will close at 5pm on Monday 15 May 2017.
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