Last week, the PPF released their consultation on the next levy triennium (2018/19 – 2020/21). Their initial analysis shows that (on the proviso that the total levy amount collected is unchanged) two thirds of schemes, mostly relating to smaller employers, will see a reduced levy. However, it may not be such good news for employers who fall into the new large employer scorecard where the PPF predicts levy rises.
Listed below is a summary of the key proposed changes, with our brief initial views:
- Reconstructed and recalibrated Experian scorecards – Five scorecards have been reconstructed, which no longer feature the trend, mortgage age or employee based variables. All other scorecards will be recalibrated.
Our view: These changes have been made to reflect insolvency experience over the past 3 years. It is welcome news that mortgage age has been removed as a variable for Large and Parent Companies.
- Credit ratings converted into Experian scores for Publicly Rated Companies and Industry specific scorecards for FCA regulated institutions
Our view: It is difficult to argue against this proposal, rating agencies have models in place which are far more suitable predictors of insolvency.
- Simplifying deficit reduction contribution certification (DRCs), either by removing the need to deduct investment expenses, or simply certifying those contributions set out in the recovery plan.
Our view: Yes, Yes… Yes!!! The current painstaking process of deducing investment expenses from ‘opaque’ charging structures increases time cost and often materially offsets the levy credit upon certifying.
- Parental Guarantees and Certification of Contingent Assets – For realisable recoveries of £100m or more, the PPF proposes a requirement for an additional report completed by a professional advisor. There are also proposed changes for Multiple Guarantors and Guarantors who are employers.
Our view: This will be an extra administrative burden and incur fees. However, taking into account the PPF’s ‘disappointment’ at the number of rejected certifications, a more robust reporting requirement could lead to more certifications.
- How Good Governance can be reflected in the levy if possible, without undue ‘administrative burden’.
Our view: It sounds like a good idea, but near impossible to implement uniformly.
Our view: The Experian Portal now illustrates the impact of the proposal on the score alongside current scores. We recommend that the relevant stakeholders check to see if there is an adverse impact on their score and subsequent levy banding.
Quantum Advisory is able to provide levy estimates to assist with budgeting for employers and trustees. Please contact us if you would like any further assistance.
More technical detail on the consultation will appear soon as a website article.