Failure scores
Most sponsoring employers have an individual failure score on a 1 to 100 percentile scale, where 1 represents the businesses with the highest probability of insolvency and 100 the lowest. Each failure score has an associated probability of insolvency, published in the determination, the factor used in the levy calculation. Any two UK businesses with the same score will also have the same probability of failure.

Probabilities of insolvency for employers based outside the UK
There has been a change for 2010/11 to the way in which D&B assigns probabilities of insolvency to overseas failure scores which will bring such failure scores into alignment with the UK system. This change involves the use of a table that has been calculated by D&B which allows any 1-100 overseas failure score to be converted into a UK equivalent. Details of the reasons and the exact nature of the change can be found in the 2010/11 Pension Protection Levy Consultation and the 2010/11 Pension Protection Levy Consultation Policy Statement documents.

D&B’s international branches or associates are able to provide a failure score and probability of insolvency for most employers based outside the UK. In the absence of a failure score, they will provide a ‘risk indicator’ which also corresponds to a probability of insolvency, and is treated in the same way. Contact D&B directly if this applies to you and you have questions.”

Industry average probabilities of insolvency
In a minority of cases where D&B is unable to provide a failure score or risk indicator for a scheme’s sponsoring employer, an industry average probability of insolvency is used in the risk-based levy.

This is calculated as the median probability of insolvency of all UK sponsoring employers of defined benefit schemes sharing the same 1972 Standard Industry Classification code as the employer in question.

Multi-employer scheme probabilities of insolvency
For schemes with more than one sponsoring employer, the calculation uses an average of the employers’ probabilities of insolvency, weighted by the number of members for each employer as listed in the scheme return.

The weighted average is then adjusted according to the type of scheme.

If the scheme’s rules include an option or requirement to segregate if an employer ceases to participate, the weighted average probability of insolvency is not adjusted.

If the scheme’s rules do not include an option or requirement to segregate if an employer ceases to participate (i.e. the scheme is “last man standing”), but the scheme is not a centralised scheme for non-associated employers, the weighted average probability of insolvency is multiplied by 0.9.

If the scheme is a last man standing, centralised scheme for non-associated employers, the probability of insolvency is multiplied by the proportion which the number of members employed by the employer with the most members bears to the total number of scheme members.

Scheme average probabilities of insolvency
For a multi-employer scheme with more than 10 employers, where D&B is able to provide a failure score for 90 per cent of those employers (or 50 per cent if a scheme has more than 100 sponsoring employers), the probability of insolvency used in the risk-based levy for any employers of the scheme with no failure score is the mean probability of insolvency of the scheme’s employers that do have a failure score.