Most weeks, I am enthusiastically offered a ‘a free credit score’. Most weeks, I choose to ignore said offers!

However, failing to monitor the credit score of a defined benefit scheme sponsoring employer can prove to be extremely costly.

The Pension Protection Fund (PPF) first came into existence in 2006, providing a lifeboat for members of defined benefit (DB) pension schemes. Similar to paying an insurance premium, it is funded by levies on all eligible Defined Benefit Schemes.

In partnership with the PPF, Experian produces an assessment of Insolvency risk (a ‘score’) for sponsoring employers which forms a key component of the levy calculation. These scores are largely based on key financial metrics from Company accounts and, in our experience, it is a common misconception that these scores are ‘final’, correct and consequently do not require review.

Checking the correct data is being used, assessing the impact of filing new accounts and exploring opportunities to improve the score can result in significant cost savings.

In our experience, the scoring system is not always easy for clients to follow and the ‘What-if’ tools found on the portal can be particularly user ‘unfriendly’. We have also seen in many cases that the data/scorecard are incorrect. Therefore, it is crucial that appropriate assistance is sought to ensure Employers aren’t overpaying on their levies.

This will involve more than your adviser simply reviewing the data, but providing sensitivity analysis to highlight options where future levies can be reduced significantly. Based on our own relationship with the PPF and Experian, here are some of the examples where we have seen significant success:

·       In acknowledgment of a data discrepancy, we received credit notes from the PPF up to a value of £95,000 over three historic levy invoices. This was particularly satisfying as the original annual levies were around £70,000.

·       By understanding the client’s corporate structure and how this was presented in their financial statements, we could use our knowledge of the Experian scoring system to obtain an exclusion. This will save the client £600,000 on their 2018/19 Levy.

·       Advised an SME Company on the impact of a change in their Corporate structure which will mitigate a hugely significant increase in their levy. Based on our levy estimates, the increase in levy could have resulted in an Insolvent Principal Employer.

The insolvency risk used in the 2018/19 PPF levy calculation will be a six-month average from October 2017 to 31 March 2018. 

Robert Palmer, Partner at Quantum Advisory