Insolvency risk represents the likelihood of a scheme’s employer(s) or guarantor(s) becoming insolvent.
In the levy formula, this is represented by IR - the insolvency risk of the scheme. Scores are calculated on a monthly basis. IR may be modified where there is a Type A contingent asset.
From 2018/19 we will be using a range of different approaches to assessing the insolvency risk of scheme employers – depending on the nature of the employer:
a) Where an entity has an appropriate credit rating, we will use that.
b) Where an entity is a financial services business, and is unrated, we will use scores from the S&P credit model
c) Where neither (a) nor (b) apply, we will use the PPF-Specific Model, provided for us by Experian. This is the basis on which the large majority of scheme employers are scored – and this page sets out key information on the PPF-Specific Model.
The chart here shows the hierarchy of the different scoring methods.
A small number of employers, closely linked to Government, which cannot be scored appropriately by a conventional model are assessed as Special Category Employers.
The PPF-specific model
Since Levy Year 2015/16 Experian have provided the PPF with scores for the purpose of the PPF Levy, using the PPF-specific model. This is a statistical model, developed using observed insolvencies amongst employers and guarantors of defined benefit pension schemes.
The PPF-Specific Model was substantially updated for Levy Year 2018/19, and the description that follows relates to the 2018/19 Model. For information about the Model for levy years 2015/16-2017/18, please see the information here.
Schemes and employers are encouraged to register and access information using the Pension Protection Score Portal. In addition to score information the portal has guidance material (including score card worked examples) and FAQs. Once registered with the portal you can also use the ‘What if’ to see the impact new data will have on an employer’s Pension Protection Score.