Published by Paul Hamilton on
While the PPF and Experian initially segmented the UK population of defined benefit (DB) pension scheme sponsors into seven homogeneous groups for the purpose of creating their model, subsequent analyses suggested a lack of predictability for sectors including Health, Education, Local & Regional Government and Charities, which represent around 18% of the PPF-employer population. As a result, a decision was made to construct a separate scorecard that would apply to any entity meeting the PPF’s 'Not-for-Profit' (NFP) definition.
While Experian will primarily source information from Companies House, there is an acknowledgement that collecting information for NFPs will provide more of a challenge. Experian have therefore widened the sources from which information will be collected to include other bodies, such as the Charities Commission. Furthermore, Experian are also expected to have the ability to research entities manually and capture publically available, filed accounts not appearing on a central register. Entities not required to file accounts information will also be able to submit this directly to Experian.
We understand that the PPF and Experian have also been looking into whether or not it would be possible for Experian to access and collect accounts publicly available through umbrella governing organisations. As a result of this, Experian have confirmed that they are intending to obtain data from several other sources, including the HEFCE. The process of downloading information from these new sources is likely to take some time (possibly a couple of weeks), but the affected universities should ultimately see scores that better reflect their financial position.
Although this widening of data sources is expected to resolve a number of issues, it is still recommended that HEIs ensure that they are being scored correctly. In particular, they should look to:
Importantly, where there is a lack of information or the inability to clarify a match to a recognised business or entity, the PPF have confirmed that the entity will be scored by an “alternative means”. In particular, a scheme-average score will be adopted where there are at least ten participating employers within a multi-employer scheme - this is likely to be particularly relevant to participating employers of the USS. Otherwise, either an industry or blended average score will be used which the PPF acknowledges “will not, in many cases, accurately reflect that employer’s insolvency risk”.
While this eighth scorecard is expected to provide a better fit for the Not-for-Profit sector than the seven other commercial scorecards, the proposed change to Experian is expected to result in a material redistribution of the levies payable by PPF-eligible pension schemes, with all bills expected to see some change. Indeed, the PPF have estimated this redistribution to be of the order of £100 million, with the NFP sector being one of the two sectors identified to be most detrimentally affected, in aggregate, by the proposed change.
More specifically, the introduction of a bespoke model and NFP scorecard will see a significant change in emphasis. While the D&B model historically considered up to 30 financial and non-financial measures to produce an insolvency risk rating, the new NFP scorecard considers only six variables, two of which (Capital Employed and Total Assets) drive nearly 70% of the overall score.
This change in emphasis will, the PPF estimates, see around 25% of NFPs experience a deterioration in insolvency risk score and around 35% of NFPs will see an increase in their PPF levy going forwards. Most affected by the changes are expected to be those entities previously scoring 100 under the old D&B model, and those with Capital Employed of less than £100,000.
As part of their consultation package, the PPF also proposed several other changes to the way in which future levies will be calculated:
Aside from the need to ensure that the data being held and modelled by Experian are correct, there are various other actions that HEIs and other NFPs can consider to help mitigate levy increases. These include: