- PPF to consult on new, PPF-specific model enabling greater predictive accuracy in assessing insolvency risk, and producing bespoke insolvency risk scores
- PPF levy payers to be given ample time to understand scores before they are implemented
- New methodology means redistribution of levy between levy payers; PPF to consult on transitional measures
- Model developed with Experian, drawing on PPF-specific data and industry expertise
The Pension Protection Fund (PPF) has launched a consultation on the introduction of a new, PPF-specific insolvency risk model for determining levy payments, developed with global information solutions company, Experian, and drawing on input and expertise from the pensions industry and employers’ representatives.
The consultation paper sets out details of the proposed new model, and analyses anticipated changes to levy bands and rates. Following extensive discussions with industry representatives, the PPF-specific model aims to provide much greater precision and discriminatory power in assessing employers’ insolvency risk, and reflects more accurately that the PPF employer universe is very different to the broader UK corporate landscape that generic models look at.
The bespoke model has been independently assessed against nine success criteria identified by the PPF’s Industry Steering Group, and found to be as effective as more generic models in four of them, and superior in five, including the ability to predict insolvency. It is expected that the new scores will not be used until October 2014 to calculate the levy from 2015/16 onwards, reflecting the PPF’s commitment to allow schemes ample opportunity to understand and, where necessary, challenge scores, before they are used.
PPF Executive Director of Financial Risk, Martin Clarke, said:
“We believe the new insolvency model will ultimately provide more discriminative and robust insolvency risk scores, plus offering greater transparency and access to levy payers. But we are determined that levy payers should be an integral part of this change, which is why which is why we are consulting and allowing levy payers time to understand the new model, to check the information held on them and familiarise themselves with their predicted levy.
“The PPF looks forward to engaging with levy payers and other stakeholders over the coming months to ensure the new model is fully integrated and delivering greater accuracy and transparency in assessing insolvency risks.”
Paul Vescovi, Managing Director for Experian Credit Services, commented:
“The model we have created offers a more accurate assessment of insolvency risk score as for the first time it has been calculated using historical insolvency data from the universe of PPF employers. It uses variables demonstrated to be most predictive and appropriate for businesses that have eligible defined-benefit pension schemes. We will be working closely with the PPF in the upcoming weeks to provide support for levy payers by helping them understand the new score and what it means for them.”
In addition to its own internal analysis of the proposed changes, the PPF also engaged PwC to provide assurance that the model represents best practice, as well as sharing information on the model, the PPF’s own analysis and PwC’s conclusions with the PPF Industry Steering Group.
The new methodology is not designed to change the aggregate amount of levy raised. The PPF’s impact assessment, however, anticipates a significant reconfiguration of around £230 million within the total levy raised, with more levy payers seeing a fall in their levy than an increase. The consultation paper seeks views on whether schemes facing significant increases in their levy should be afforded some form of transitional protection, and what form that might take.
In addition to the adoption of the PPF-specific model the consultation also proposes new approaches for the treatment of Asset Backed Contributions, parental guarantees and associated last man standing schemes for levy purposes.
1. The Pension Protection Fund protects millions of people throughout the United Kingdom who belong to defined benefit pension schemes. If their employers go bust, and their pension schemes cannot afford to pay what they promised, the PPF will pay compensation for their lost pensions. Tens of thousands of people now receive compensation from the PPF and hundreds of thousands more will do so in the future. The PPF is a public corporation, set up by the Pensions Act 2004, and is run by an independent Board.
2. Experian is the leading global information services company, providing data and analytical tools to clients around the world. The Group helps businesses to manage credit risk, prevent fraud, target marketing offers and automate decision making. Experian also helps individuals to check their credit report and credit score, and protect against identity theft.
Experian plc is listed on the London Stock Exchange (EXPN) and is a constituent of the FTSE 100 index. Total revenue for the year ended 31 March 2014 was US$4.8 billion. Experian employs approximately 16,000 people in 39 countries and has its corporate headquarters in Dublin, Ireland, with operational headquarters in Nottingham, UK; California, US; and São Paulo, Brazil.
5. Measurement of insolvency risk was previously out carried for the pension protection levy by D&B. D&B will continue to handle queries and appeals in relation to the use of D&B scores in invoices for the 2014/15 levy year and earlier years.
For further press information contact: Richard Williams on 020 8633 5925