Changes to how Pension Protection Fund (PPF) levy payments are calculated this year mean many defined benefit (DB) schemes will be better off however some schemes will see significant increases, with the highest expected to be in excess of £200k. Not for profits have been identified as organisations particularly affected (together with partnerships) and should check their levy invoices carefully.
The PPF provides a safety net for defined benefit pensions scheme members where their employer becomes insolvent. It is funded by annual levies which schemes are required to pay. The PPF began issuing invoices for the 2015/2016 levy year in September – starting with the largest schemes first. Schemes which have not already received their invoice should expect it to arrive over the coming weeks.
This is the first year the PPF has used a new approach to assessing employer insolvency risk, using a scoring model developed with the credit ratings agency Experian, following a switch from Dun & Bradstreet. For the first time the PPF is using a separate scorecard specifically for the not-for-profit sector. Data used for allocating the scorecard and assessing overall insolvency risk is generally taken from the latest filed accounts at Companies House or the Charities Commission.
While it is too late to provide new information which could influence the 2015/2016 levy calculation, employers and trustees should carefully check their invoice immediately on receipt because there may be scope to appeal if it has not been calculated in line with the PPF’s published rules.
Any incorrect information should also be addressed before the deadline for next year, including:
- Has the correct scorecard been used?
- Have the correct accounts been identified, in particular for employers who do not file at Companies House? If not, accounts can be voluntarily submitted to Experian (including the full accounts where only abbreviated accounts are filed).
- Have the accounts been interpreted properly? In particular, is Experian looking at the correct legal entity?
- Experian also looks at the strength of any ultimate parent company. Has the correct parent company been identified and their latest accounts picked up?
However, if your invoice arrives and it is significantly higher than last year it may be worth seeking additional advice.
The 2016/2017 levy
On 21 September 2015, the PPF announced its 2016/17 levy estimate (the total it is aiming to collect) at £615m. This represents a slight drop compared to this year’s estimate of £635m. The PPF also published its consultation document for the 2016/17 levy year. There are no material changes but some proposed variations a “limited and technical nature”.
The PPF is considering whether to make changes in future levy years to take account of the new financial reporting standard FRS 102 which applies from 1 January 2015. FRS 102 will require employers to disclose multi-employer DB scheme deficits in their accounts. The previous reporting standard allowed employers to account for DB liabilities on a defined contribution basis. The PPF recognises that the change could be detrimental to scores and in particular may impact employers on the Large and Complex and Not-for-profit scorecards. The PPF is inviting evidence and views from affected employers.
Click here to view the table.