Consultation on PPF Levies from 2018 Changes to Experian Scores
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Consultation on PPF Levies from 2018
2018 - 2020
Changes to Experian Scores
Period covered
The Pension Protection Fund (PPF) has launched a consultation on its annual levy.
by the PPF’s levy
The PPF is proposing a number of changes which would come into effect with the levy
consultation
invoiced in the autumn of 2018 and run until 2020.
The most important of these changes is an overhaul of the system being used to score
employers. While the majority of pension schemes are likely to see a reduction in their
levies as a result of these changes, many schemes will see significant increases.
Experian score changes
As part of the levy calculation, all employers are given a predicted chance of insolvency,
using a model developed and managed by Experian. Each employer’s score under this
system is used to place them in a band from 1 (the strongest) to 10 (the weakest).
Schemes with sponsoring employers in the stronger bands are deemed a lower risk to
the PPF and so pay lower levies than schemes with sponsoring employers in the higher
bands.
MAY 2017
In this issue...
Consultation on PPF
Levies from 2018
Changes to Experian
Scores | Snap UK
Election Leads to
Partial Pensions
Paralysis
Making Sense of Pensions
The PPF believes that the current scoring system can be improved, so that the Experian
scores better predict the rates of insolvency they see in practice. As a result several of
Experian’s scorecards are being overhauled. The key changes are:
• Employers with formal credit ratings will be placed in a levy band using their credit
rating, rather than the Experian model.
• Employers currently scored using the Large and Complex or Independent
scorecards will now be moved to one of two completely new scorecards. The new
scorecard for such companies with annual turnover above £30m is considerably
less generous than its predecessors. Most employers in these groups, which include
many Group Parent companies, will see a worsening of their Experian score. The
worsening is typically by two to three bands, but is more in some cases.
• The Not for Profit scorecard is being rebuilt. Most Not for Profit employers will see
2 to 3 bands little or no change, but a substantial minority will see significant deteriorations in
their scores.
Typical deterioration • Some financial firms (banks, insurance companies and so on), will be moved onto a
of Experian score for specialised new scorecard.
many Group Parent
and Independent As part of the rebuild, the PPF have dropped mortgage age from several scorecards.
Companies They have also removed ‘trend’ variables from some scorecards. Both variables have
been criticised for unfairness to employers in certain circumstances.
The effect on levies
Overall, there are more employers whose Experian scores will worsen than employers 30% - 60%
whose scores will improve. Indeed, many employers will see their scores worsen by
several bands. Increase in PPF Levy
for each increase in
However, the PPF aims to collect a set total amount from levy payers each year. That
Band number, after
means that whenever some schemes pay a higher levy, the remaining schemes pay a
the first two
lower levy.
As the PPF levy has a number of moving parts, it is not yet possible to determine the
precise effect of the proposed changes on each scheme’s levy. However we do have a
broad sense of how things could change, all other things being equal:
• Schemes whose Experian scores remain in their current band or improve could see
a noticeable reduction in their levy – perhaps by as much as 40%.
• Schemes whose Experian scores worsen by one to two bands are likely to see a
relatively modest change in their levy.
• Schemes whose Experian scores worsen by more than two bands are likely to see a
noticeable increase in their levy. Each band worse after the first two could increase
the levy by 30% - 60%.
Overall we expect the majority of schemes to see a reduction in their levy, with a
minority seeing significant increases.
Accessing the proposed scores and next steps October 2017
The proposed new scores can be found through the usual Experian portal. They are
highlighted in orange for each employer and are shown in addition to the scores under Earliest date from
the current system, which are in blue. which the new scores
might count
As some variables are being used for the first time, it is important to check that there
are no gaps in the data being used by Experian. Your usual Xafinity contact can help
with this if needed.
The proposed changes are still being consulted on and it could still be that further
changes are made to the scores. In recognition of this, the new scores won’t start to
count towards the levy until October 2017 at the earliest.
For those wishing to respond to the PPF consultation, the deadline for responses is 15
May.
Snap UK election leads to partial
pensions paralysis
In line with the Fixed-term Parliaments Act 2011, a United Kingdom general election
had not been due until 7 May 2020, but a call for a snap election by Prime Minister
Theresa May received the necessary two-thirds majority in a 522 to 13 vote in the
House of Commons on 19 April 2017. A new general election of 2017 is therefore now
scheduled to take place on 8 June 2017.
This unexpected move by the Prime Minister has already had some knock-on
implications for UK pensions policy. In particular the Chancellor tabled amendments
to the Finance Bill (now the Finance Act 2017, following Royal Assent in April) that
removed, amongst others:
a) the reduction in the Money Purchase Annual Allowance (MPAA) to £4,000 (from
the current £10,000) that was scheduled to come into effect; and
b) the introduction of the tax-free exemption for the first £500 pa of employer-funded
pensions advice.
The financial secretary to the Treasury (Jane Ellison), speaking in the House of
Commons, confirmed that the government would reintroduce all the dropped
Finance Bill clauses at the “earliest opportunity in the next Parliament”, assuming the
Conservative Party is re-elected.
Whoever is ultimately elected it seems likely that pensions will feature in their plans,
and so we should reasonably expect some new pensions developments after the
election.
The Conservatives are understood to be considering replacing the Triple Lock on
State Pensions with something less generous (a “Double Lock” has been suggested).
By contrast, the Labour Party has spoken about extending the Triple Lock out to 2025
(rather than 2020 as currently planned).
And Theresa May has spoken of her plans “to ensure the pensions of ordinary working
people are protected against the actions of unscrupulous company bosses” – for
example by increasing the powers of regulators over company pensions, including fines
for employers who deliberately underfund schemes and the power to block corporate
takeovers where the solvency of the company scheme appears to be threatened.
Xafinity is a market leading actuarial, pensions and employee benefit consultancy providing a full range of consulting and administration
services to over 500 clients. We combine expertise, insight and technology to address the needs of both trustees and companies,
specialising in pension de-risking solutions. We are committed providing a professional and proportionate service, tailored to our clients’
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Registered in England and Wales under Company No. 2459442. Xafinity Consulting Limited is authorised and regulated by the Financial
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