The Pension Protection Fund (PPF) has begun issuing PPF levy invoices to all eligible schemes in respect of the 2011/12 levy. This year, the PPF aims to collect an overall levy of £600 million. Before your scheme’s invoice hits your desk you should know about important changes to the calculation of Dunn & Bradstreet (D&B) failure scores for sponsoring employers. You also need to know the timescale for paying the levy and what to do if you want to challenge your scheme’s levy.

How is the 2011/12 levy going to be calculated?

A scheme’s PPF levy for 2011/12 will be calculated using data supplied in scheme returns on or before 31 March 2010. PPF-compliant contingent assets, deficit-reduction contributions and full block transfers will be taken into account provided they were certified and filed with the PPF before  the relevant deadlines earlier this year.

A scheme’s underfunding risk and the sponsoring employer’s (or guarantor’s) D&B failure score will be measured as at 31 March 2010. However, there are some important changes to the way D&B measures insolvency probabilities which may affect the amount of your scheme’s 2011/12 levy.

Changes to Dunn & Bradstreet failure scores

The key changes that take effect for 2011/12 are:

  • PPF-compliant contingent assets will be excluded by D&B when assessing the effect of charges on company assets
  • when measuring the failure score of a subsidiary with a parent company at substantial risk of insolvency, the failure score of the parent will override that of the subsidiary (for some schemes this is a potentially significant change, yet it is unclear from the 2011/12 Determination how this will be applied in practice)
  • a new attribute called ‘Nationwide’ has been introduced for businesses with three or more branches in different UK regions which will mean they will be assessed as a national rather than regional employer (this means businesses that are essentially nationwide in scope are treated as such, rather than being rated on the location of their main trading address)
  • employers that seek changes to certain information held by D&B, including industry sector or geographical region, will need to provide appropriate evidence to support that change, and
  • for charities, accounts filed with the Charity Commission up until 30 March 2010 will have been automatically picked up by D&B for use in the 2011/12 levy year.

What do you do if you want to challenge your scheme’s levy?

If you think that the amount of your scheme’s levy is incorrect, you can:

  • contact D&B to check that they have correctly matched your employer(s) to records in their system and to check the failure scores for your scheme’s employer(s) and the associated probability of insolvency in 2011/12, and/or
  • contact the PPF to query your scheme-based levy or the underfunding risk factor of your risk-based levy, or with any other query relating to your levy invoice.

All queries or appeals must be made within 28 days of the date of issue of the invoice. The 28 day deadline for your scheme will be stated on your scheme’s invoice. You then have a maximum of 28 days to escalate your appeal to each subsequent stage. If you wish to raise an appeal with D&B and a query with the PPF, you should do so simultaneously.

Where the reason for an error in the levy amount is due to a failure by the scheme to provide correct information to the PPF before the appropriate deadlines, it is generally very difficult to successfully challenge the amount of the levy.

When do you have to pay the levy?

The levy has to be paid within 28 days of the date of your scheme’s levy invoice. After 28 days interest will be charged at the rate of 5 per cent per annum above the Bank of England base rate for every day that payment is outstanding.

Future changes

The PPF Board has announced that the levy estimate for 2012/13 is £550 million, the lowest pension protection levy estimate to date. The PPF Board has also published a consultation document on the future shape of the levy. The consultation document proposes significant changes to the measurement of insolvency and underfunding risk, which includes the introduction of a new risk factor, investment risk, in the calculation of underfunding. In order to deliver stability and predictability the Board intends to keep the rules of the levy calculation fixed for three years from 2012/13.

We will publish a separate speedbrief shortly which will consider these proposed future changes in more detail.