PPF Levy 2020/2021– issues, deadlines and consultation
4th February, 2020
The PPF has published its final levy rules for 2020/21 and expects levy invoices to be around 8% higher than the previous levy year. Any increase for an individual scheme will, of course, depend on specific risk characteristics. Sponsors and trustees should consider PPF levies before the deadline dates shown below.
For Type A contingent assets, the PPF has updated parts of its guidance on guarantor strength reports. This is to encourage a more holistic assessment of guarantor strength with greater reliance on professional adviser judgment.
Minimising the levy
The PPF acknowledges that accounting for GMP Equalisation costs may have an impact on an employer’s risk-based levy. Where certain conditions are met, it will allow employers to request an adjustment to the accounting figures it uses. The PPF emphasises, however, that this is not a general departure from its view that information as reported in employers’ accounts should be used in scoring.
The PPF has said it will produce a standard form for employers to complete and guidance on the evidence required. Requests should be made within 28 days of Mean Scores being published by Experian (expected early July 2020).
KEY DATES Minimise the 2020/21 PPF levy – midnight on 31 March 2020. Contingent asset hard copy documents – to be delivered to the PPF by 5pm on 1 April 2020 Deficit reduction contribution certificates – to be submitted via Exchange by 5pm on 30 April 2020 Certification of block transfers – to be submitted via Exchange by 5pm on 30 June 2020
Where levy mitigation is planned, action should be taken as soon as possible.
Consultation on new insolvency risk scores
The PPF has launched a consultation, which closes on 11 February 2020, on insolvency risk scores. It has also announced that from April 2020 it will use Dun & Bradstreet (D&B) to calculate the insolvency risk of a pension scheme’s sponsoring employer, having used Experian for the past six years. It has stated that D&B will use largely the same approach as Experian.
The main proposed change is to recalibrate the existing PPF model scorecards, to provide a better fit with actual insolvency experience. According to the PPF, the proposed recalibration helps eliminate the smaller and not-for-profit entities subsidising the largest employers.
D&B’s approach to collecting and interpreting data, to the extent that this differs from Experian, will also have an impact on scores. In addition, D&B will take a different approach to ascertaining an organisation’s ultimate parent company and determining consolidated accounting figures when financial information on an ultimate parent is not available.
The PPF encourages those that may be affected to check they are satisfied with D&B’s interpretation of the ultimate parent company and, if appropriate, to provide feedback. It also proposes:
- For group entities, the mortgage age variable is removed and replaced by a cash by current liabilities variable.
- The creditor days variable is capped at 60 days to remove extreme model values.
- For regulated financial institutions the creditor days variable is given a neutral value reflecting the fact that these entities do not have trade creditors.
Impact of change
According to PPF analysis:
- two-fifths of employers are expected to remain in the same levy band;
- the largest employers on Scorecard 1 are likely to see a worsening in scores due to the recalibration; and
- more organisations on the other seven PPF model scorecards will see an improvement in the levy band as opposed to a worsening.
Coinciding with the launch of its consultation, the PPF has provided access to a test version of its new score portal that will show ‘live’ D&B scores (those based on the recalibrated scores) and ‘consultation’ D&B scores (that allow for all changes).
The new score portal can be accessed via https://levy.ppf.co.uk/login.
ACTION FOR TRUSTEES Check that you can access the new D&B scores via the D&B score portal (see above). Review the new scores and ensure you understand the prospective impact on your levy. Review the data used by D&B. Consider if any supplementary information would help with your score.