Monday 9 November 2009
Proposals reflect industry feedback and changes to D&B methodology
New insolvency probabilities more closely reflect actual experience of schemes entering PPF
Appropriateness of D&B scores for PPF employer universe increased
Views to be provided by middle of December
The Pension Protection Fund (PPF) today (Monday) published proposals for the 2011/12 pension protection levy year which improve the way it assesses the insolvency risk for sponsoring employers of pension schemes that pay the levy.
These proposals reflect industry feedback and a review of methodology and insolvency probabilities carried out by Dun & Bradstreet (D&B) which continues to measure insolvency risk for the PPF.
PPF Chief Executive, Alan Rubenstein, said: “Measuring the insolvency risk of the 20,000 sponsoring employers of schemes we protect is a complex task – and we need to have a system which accurately reflects the risks posed by a range of different employers, commercial and non-commercial, large and small, UK and foreign. We have shown in the past we are prepared to make changes to the way we do this.
“We work continually with D&B to make sure that failure scores, and the risk of insolvency we associate with these, remain appropriate. D&B have reviewed their methodology and insolvency probabilities in light of the significant economic changes that have taken place in the last year or so. Therefore, we thought it timely to assess D&B’s review and address the issues raised by industry about insolvency risk measurement.”
Key changes include:
D&B will collect accounts from the Charity Commission rather than relying on charities providing their own accounts
a new attribute called ‘nationwide’ will be introduced for businesses with three or more branches in different UK regions which will mean they are assessed as a national rather than regional employer
PPF-compliant contingent assets will be excluded by D&B in their scores as they reflect the financial position of the pension scheme and not the employer
when measuring the failure score of a subsidiary whose parent company is at substantial risk of going bust, the score of the subsidiary will be that of the parent, and
employers that seek changes to their industry sector or geographical region will need to provide evidence to support that change.
The PPF is consulting on these changes now because they relate to failure scores which take effect from 31 March 2010 for the 2011/12 levy year. Another consultation on 2011/12 levy will be carried out next year once the levy scaling factor is available for the 2011/12 determination. However, the PPF expects no major policy changes.
Note to editors:
1. Copies of the document, ‘The 2011/12 Pension Protection Levy Consultation:insolvency risk’ are available on the PPF website. Closing date for the consultation is Monday 14 December.
2. During summer 2009 D&B revised its UK failure score methodology. This review of the failure score methodology was strongly influenced by the significant economic changes of the prior year, particularly the pace of that change, and its unequal impact on different industrial sectors. To take account of these events, D&B will now make increased use of interim financial statements for quoted companies to reflect the potential for sudden change and give greater weight to changes in payment behaviour, reflecting the impact of the financial crisis on short-term cash flow.
3. The Pension Protection Fund was set up under the provisions of the Pensions Act 2004 in April 2005 and is classified as a public financial corporation. It has been established to pay compensation to members of eligible defined benefit and hybrid pension schemes when there has been a qualifying insolvency event in relation to the employer, and where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation.
For further press information contact: Richard Hunt on 020 8633 5931/0789 425 5561 or Ana Moreno on 020 8633 4932/ 07961 957 480