The Pension Protection Fund (PPF) has launched a consultation on the introduction of a new PPF-specific insolvency risk model for determining levy payments for the next three years.
The purpose of the proposed new model is to provide greater predictive accuracy in assessing insolvency risk, and produce bespoke insolvency risk scores.
The consultation paper also analyses the anticipated changes to levy bands and rates.
The introduction of the new technology would lead to a redistribution of levy between levy payers and the PPF said that it would consult on transitional measures.
The new scores are not expected to be used until October 2014 to calculate the levy from 2015/16 onwards, so that schemes have enough time to understand and challenge the scores before they are used.
Martin Clarke, PPF executive director of financial risk, 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 proposed new insolvency rick model was developed with Experian with contributions from industry representatives and PricewaterhouseCoopers (PwC).
Experian Credit Services managing director Paul Vescovi said: "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 the new model, the consultation also proposes new approaches for the treatment of asset backed contributions (ABCs) parental guarantees and associated last man standing schemes for levy purposes.
CBI head of pensions Jim Bligh said: "The way the risk-based element of the levy has been calculated hasn't always fairly reflected insolvency risk, so we welcome the PPF and Experian's new approach, which should result in more accurate and fairer risk scores for businesses. Ensuring the model is accurate for all firms is something we look forward to working with the PPF on in months to come.
"With any new system, there will be some winners and some losers. Companies required to pay bigger levies must be given time to adjust by the PPF – and it's essential that businesses raise any concerns about their scores with the PPF and Experian."
Barnett Waddingham associate Simon Taylor said: "The PPF's decision to use a bespoke insolvency risk model for the purpose of calculating future risk-based levies is a positive move. The focus on employers solely within the PPF universe should improve stability and help with the evaluation of the risks posed to the PPF which, in turn, should also result in a fairer assessment and distribution of schemes' PPF levies.
"The increased transparency of the new model is a welcome change from the "black box" approach essentially adopted by D&B in their commercial model. Both trustees and employers will have access to a free-to-use web platform which will enable them to both understand and manage the factors contributing to their insolvency risk rating."
First published 29.05.2014
monique_simpson@wilmington.co.uk
