For the 2014/15 levy year, levies are calculated according to the following formulae:
- Risk-based levy (RBL) = underfunding risk x insolvency risk x levy scaling factor (0.73)
- Scheme-based levy (SBL) = smoothed liabilities x scheme-based multiplier (0.000056).
The information submitted in schemes’ annual returns to the Pensions Regulator (TPR) by 31 March 2014 will be used to calculate underfunding risk. The asset and liability values will be smoothed over five years using financial market averages up to 31 March 2014. This aims to reduce the effects of temporary market movements.
The PPF take a scheme’s investment strategy into account when calculating underfunding risk, to reflect the fact that some investments are more risky than others.
‘Stressed’ asset values will be calculated from the asset information submitted in scheme returns by 31 March 2014. To calculate the stressed value of assets, the PPF will apply the following standard tests to the smoothed asset value:
Schemes with Section 179 liabilities that are greater than £1.5 billion are required to submit the results of some additional analysis (a “Bespoke Stress Calculation”). This is to ensure that the investment risk for schemes that represent the largest funding risk to the PPF is reflected correctly. Further information on bespoke asset testing can be found here.
Schemes with Section 179 liabilities that are less than £1.5 billion may also carry out a bespoke stress calculation on their assets and submit the results to the PPF, although this is not compulsory. The PPF suggests this approach may only be appropriate for schemes with a risk-reducing derivatives strategy in place.
Insolvency risk is based on the average of the month-end Dun & Bradstreet (D&B) failure scores from 30 April 2013 to 31 March 2014. The average failure score is placed into one of ten bands to reduce the sensitivity of the PPF levy to small changes in failure scores. The band into which the average failure score is placed will determine the insolvency probability used in the levy calculation.
For schemes with more than one employer, the PPF will calculate an average insolvency risk, taking into account of all scheme employers.
2014/15 PPF levy invoice
The PPF will issue invoices for the 2014/15 financial year from autumn 2014. This levy will be calculated based on the following information:
- Levy-related data on the Scheme Return entered on the Pensions Regulator's Exchange system up to 31 March 2014
- The D&B failure score at the last working day of each month from 30 April 2013 to 31 March 2014
- Section 179 valuation results submitted on or before 31 March 2014
- Contingent assets certified/recertified on or before 31 March 2014
- Deficit reduction contribution certificates submitted on or before 30 April 2014
- Block transfers that have taken place up to and including 31 March 2014.
The invoice will set out the information used to calculate the levy and you should check that this is correct. Any queries on the invoice must be raised within 28 days of the invoice being issued. If you believe there is an error in the failure score used in the calculation you should contact D&B, but all other queries can be directed to the PPF. The PPF will start to charge interest on the levy invoice from 28 days after it is issued, therefore prompt payment/investigation is essential. Further details can be found on the PPF’s invoicing page.