The Pension Protection Fund (PPF) first came into existence in 2006, providing a lifeboat for members of defined benefit (DB) pension schemes. Similar to paying an insurance premium, it is funded by levies on all eligible DB schemes.
For the last two levy trienniums, the PPF has worked in partnership with Experian to produce a model to assess the insolvency risk for sponsoring employers which forms a key component of the levy calculation.
The PPF announced last year that it had reappointed Dun & Bradstreet (D&B) to model insolvency risk for its levy calculations for the 2021/22 levy year (i.e. the monthly scores from April 2020), replacing Experian.
On 19 December 2019, the PPF marked this new partnership by announcing its plans for new services and consulting on its approach to the measurement of insolvency risk in the future. The insolvency risk model has been broadly retained, however the scores have been ‘recalibrated to ensure they reflect actual insolvency risk experience’. It is therefore important to note that this consultation does not represent a total revamp of the current scoring methodology, rather a refinement of the existing methods and processes. Nevertheless, the proposed changes may have a significant impact for certain schemes and so trustees and companies alike should review these proposals carefully.
The changes include a new online portal, replacing the Experian version, where the aim has been to create an improved customer service experience with additional services such as webchat and online query options.
What are the key points?
The consultation is live on the PPF website and will remain open until 5pm on Tuesday 11 February 2020. It is important to note that ‘this is the first part of a wider consultation’ with the final rules for the 2021/22 levy expected to be published in December 2020.
Portal/customer service – The new portal has been developed to create a more user-friendly experience. The PPF is at pains to stress it wishes to improve the customer service experience, therefore a new ‘webchat’ feature has been added alongside short videos explaining different aspects of the levy.
Recalibration and scorecard changes – In the first instance, D&B has built a replica of the Experian model. The D&B scores have then been recalibrated to make sure they reflect actual historic insolvency experience. The consultation also focusses on two variables which have been the subject of scrutiny in previous consultations – mortgage age and creditor days. The PPF proposes to replace mortgage age with an existing variable which compares levels of cash with current liabilities. With creditor days, the PPF proposes to cap it at 60 days, thereby removing the impact of extreme values arising which do not reflect insolvency risk.
Data Capture – D&B collates and manages data differently to Experian. There are two examples of this:
- For determining Ultimate Parents, D&B will also consider changes in Company shareholder filings rather than simply identifying the ultimate parent as outlined in the latest accounts;
- Experian collects data exactly as presented on the face of the accounts while D&B reclassifies some line items, using supplementary narrative information.
Expected impact on levies
Based on analysis published by the PPF, it expects just over a 1/3rd of employers to remain in the same levy band. Scores have generally worsened for larger employers and improved for smaller employers and not-for-profit organisations.
The rather large caveat is that these are very early stages and by the PPF’s own admission, “there are substantial gaps in the data… which may be significant for some schemes”.
What does this mean for your scheme?
These are very early stages and we expect the data capture to update in the coming weeks. Nonetheless, we anticipate that there may be similar gaps in data that we witnessed under the Experian model due to the large volume of data being captured. Further, although the PFF/D&B have taken significant steps to simplify the interface for the scoring system on the portal, it still may not be that straightforward for Trustees and employer contacts.
Therefore, particularly for this ‘transition year’, it is crucial that appropriate assistance is sought to ensure schemes aren’t overpaying on their levies.
Immediate actions to consider are as follows:
1) Activate your access to the new D&B portal and liaise with your advisers to make sure that they can access your scores.
2) Check whether the levy band and/or scorecard on the new portal are consistent with those shown on the Experian portal.
3) You may wish to participate in the consultation process before 11 February 2020. As an alternative to submitting a full consultation response, there is an option to complete a short survey.
If you would like any further information in relation to any of the above, please get in touch with your usual Quantum Advisory contact.