The Pension Protection Fund (PPF) has released a consultation setting out its proposals for the 2018/19-2020/21 levy triennium.
"The proposed changes are significant enough to warrant close attention from companies and schemes. "
Overall the PPF’s proposals for the next levy triennium are intended to result in a fairer distribution of the PPF levy between pension schemes. However, while we expect that the PPF levy for many schemes will not materially change as a result of these proposals, some schemes may end up paying significantly more.
The main focus of the consultation relates to the model used to estimate insolvency risk. While we are not seeing a complete overhaul of the insolvency risk calculation method (unlike the previous move from Dun & Bradstreet to Experian), the proposed changes are significant enough to warrant close attention from companies and schemes, as these changes are likely to determine the PPF levy payable over the three years from autumn 2018.
The PPF is proposing that, where available, credit ratings will be used to determine a company’s insolvency risk instead of the Experian model. A separate scorecard has also been proposed for regulated financial services businesses. In addition to this, the PPF is planning to refine the current Experian system to improve the accuracy of the model for specific entities – this will include changing some of the scorecards completely.
The PPF has also set out its proposals for amending the contingent asset and deficit reduction contribution regime, as well as its thoughts in relation to how pension scheme governance could be incorporated into the PPF levy calculation.
So what does all this mean for me?
We encourage everyone to talk these changes through with their advisors to understand how these proposals might affect their scheme.
It is also important to respond to the PPF’s consultation before the 15 May 2017 deadline, to ensure that the PPF levy calculation represents the views of as many schemes as possible.