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Each year defined benefit (DB) pension schemes pay a levy to the Pension Protection Fund (PPF) and one of the main factors affecting the size of this levy is the insolvency risk score allocated to the sponsors of the pension scheme.
The PPF appoints an external company to calculate this score and with effect from April 2020 the scores will now be calculated by Dun and Bradstreet (D&B) rather than Experian. These scores are collected monthly and the average of the twelve monthly scores between 30 April 2020 and 31 March 2021 will be used to calculate the PPF levy that is issued in Autumn 2021, known as the 2021/22 PPF levy.
The insolvency risk score is used to place each sponsor into one of ten levy bands with those in band 1 being assessed as having the lowest insolvency probability and those in band 10 the highest insolvency probability.
How does this appointment of D&B affect charity DB schemes?
There are some differences in the way D&B calculate the insolvency risk scores relative to the approach used by Experian. These reflect data collection differences and methodology changes to ensure the scores reflect actual insolvency experience:
- Each sponsor for a DB pension scheme is allocated to one of ten different scorecards.
- There is a specific scorecard for charities and not-for-profit organisations.
- Whilst the changes to some of the other scorecards have led to some significant changes in levy bands for some sponsors, analysis by the PPF suggests that not-for-profit organisations are much less likely to experience levy band changes. With around 75% of such organisations unaffected by the move from Experian to D&B.
- For the 25% who do see a change, those organisations are more likely to see the band improve rather than worsen, with more sponsors in band 1, which all other things being equal would lead to a lower PPF levy.
We would advise that all charities that sponsor a DB scheme should review their D&B levy band on the PPF’s new portal and check that the data D&B hold for them is both correct and up to date to ensure that their levy is calculated correctly. Doing this now will enable schemes to correct any erroneous data and ensure that the correct levy bands are used in the 2021/22 levy calculations.
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