PPF Levy forum
How the levy is calculated
The PPF levy is a function of the size of the scheme, the funding position of the scheme, and the probability of insolvency of the scheme’s sponsoring employer(s). It is calculated as follows:
For the 2018/19 levy year, levies will be calculated according to the following formulae:
The information submitted in schemes’ annual returns to the Pensions Regulator is used to calculate underfunding risk. The asset and liability values are smoothed over a five–year period using financial market averages up to the levy year in question. This aims to reduce the effect of temporary market movements.
The PPF takes 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 are calculated from the asset information submitted in scheme returns. To calculate the stressed value of assets, the PPF apply a standard test to the smoothed asset value (see page 4 of the PPF’s draft investment risk appendix):
Insolvency risk is based on the average of the month-end insolvency probabilities generated by Experian’s PPF-specific insolvency risk model. The average insolvency probability is placed into one of ten bands to reduce the sensitivity of the PPF levy to small changes in scores. The band into which the average insolvency probability is placed will determine the insolvency probability used in the levy calculation.
For schemes with more than one employer, the PPF calculate a weighted insolvency risk based on membership numbers.