Information for schemes on the move to Experian - Protecting people's futures

Information
for schemes
on the move
to Experian

        Protecting people’s futures

1. Introduction
	We undertook in January to keep stakeholders informed on progress with the
   move to Experian as our insolvency risk provider. This note sets out our plans
   and specifically our intention to use a measure of insolvency risk specifically
   designed for us: The PPF-Specific Insolvency Score. Most importantly, it sets
   out what schemes can do to keep themselves informed and to prepare.
	We, and our partner Experian, want the new insolvency risk measure to be
  a big step forward in terms of the customer experience for levy-payers. A
  free-to-use web portal will allow information held on scheme employers to
  be checked and scores to be monitored. Naturally, there will be phone and
  email support from Experian, but we believe that on-line access – and the
  ability to set up free alerts if scores change – will help make monitoring scores
  substantially easier.
	We want to be proactive in communicating the launch of this new service so
  we will use the information that schemes already provide through Exchange
  for this. To provide an additional opportunity for schemes to double check
  that the information held is up to date, we plan to use Exchange information
  from the end of April. Schemes should make sure a levy contact is identified
  (as that person will receive our email), and it is also worth ensuring that
  employer details are accurate – so that Experian can match the employers.
	We will consult for around six weeks, at the end of May, once work on
  incorporating the new scores in to the levy, and on an impact assessment,
  is complete.
	Subject to consultation, our plan is that scores will only be collected for use in
  the 2015/16 levy from 31 October 2014 onwards. This will give schemes time
  to understand the new scores before the first data that is used in the levy is
  generated, as we have committed to do. It will mean that, for 2015/16 only, a six
  month average will be used in the levy calculation. D&B data will not be used
  after 31 March 2014 – though D&B will remain the point of contact to support
  levy payers for scores collected up to that date, through their call centre.

2. Why a PPF-Specific Score?
	During the tender process, Experian offered to develop a model
  specifically to measure insolvency risk amongst sponsors of defined
  benefit pension schemes.
	The approach Experian used for this PPF-Specific Score uses the same
  principles as its Commercial Delphi score – and is an industry standard
  approach. The key distinction is that the model developed is based solely on
  the sub-population of sponsors of PPF-eligible pension schemes (rather than
  all UK businesses under the standard model) combined with our experience
  of the sponsors that have gone insolvent. This means that a PPF Specific
  Score cannot be compared to other scores, and it would not be worthwhile
  using Commercial Delphi scores to estimate the impact of the move to our
  new provider.
	We will be changing the levy bands and levy rates that the scores fit into, as
  the distribution of scores will be significantly different so that the existing
  bands would not be appropriate. As a result, comparisons based solely on old
  and new scores will not provide an accurate indication of potential changes in
  the levy payable.
	The model has been subjected to scrutiny in a number of ways. First the PPF
  has carried out its own analysis. Secondly we have engaged PwC to review
  that the model represented best practice. Thirdly we shared information
  on the model, the findings of our analysis and PwC’s conclusions with our
  Industry Steering Group. We will publish our analysis and a summary of
  findings produced by PwC alongside our May consultation.

3. How will the PPF-Specific Score work?
	The following section sets out our current intention but elements of the
  PPF-specific model may be changed before, or as a result of, consultation.
	Experian will capture financial information from a range of sources including
  Companies House and overseas equivalents, and the Charity Commission.
  Overseas entities will, wherever possible, have scores based on the same
  model, rather than having a non-UK insolvency score “translated”.
	In limited circumstances, such as when accounts cannot be gathered by
  Experian, it will be possible to supply information directly to Experian. However
  our aim is that supplying information direct to Experian should be the exception
  and that for the most part, schemes and employers should focus on ensuring
  that up-to-date information is provided to the sources Experian will use and that
  information on the Regulator’s Exchange system is accurate.
	Employers will have their insolvency risk assessed using one of eight scorecards.
  The Levy Rule which determines which scorecard is used will be based on:
  • whether the entity is part of a group or is a stand-alone business
  • the data available on the employer in accounts, as some companies do not
     publish full financial information, and
  • for group companies publishing full accounts, the size of the entity.
 There will be a separate scorecard for the not for profit sector in order to
	
 reflect its circumstances.
	Using a range of scorecards allows the model to use information that is not
  available or not as relevant for all entities, for those entities for which it is
  relevant. As a result it makes the model more predictive. Each scorecard has
  around five to seven variables, consistent with best practice design for the
  level of evidence on which the model is based.
	Different variables are used within different scorecards but, broadly speaking,
  each uses measures that capture financial fundamentals such as scale of
  operations, profitability, gearing, liquidity and cash-flow. The design combines
  spot and trend data and uses continuous variables which serve to avoid cliff
  edges – where a slight change in a variable could deliver a large change in score.
	The scorecards are heavily based on financial data and our analysis confirms
  that scores are likely to show limited volatility. As a result we consider it
  reasonable to use six months’ data (from October 2014 to March 2015) as a
  basis for the 2015/16 levy. However, this proposal will be consulted on.

4. Areas that will be covered in consultation
	We will be publishing our consultation setting out our plans for the next three
  levy years (from 2015/16 to 2017/18), including the move to Experian, at the
  end of May. Scores will be available at that time.
	As part of that consultation we will set out details on the PPF specific model
  – including a draft of the rules covering precisely how a score is calculated.
  We will set out the reasons the PPF-specific model was chosen rather than
  Commercial Delphi and invite comments on that choice.
	We will also set out the approach we plan to take in setting the levy bands
  that the scores fit into, and to the levy rate that applies to each band. Our
  intention is to retain the existing approach of broad bands, as reflecting the
  discriminative power of insolvency models.
	An impact analysis (using 2014/15 levy information) will be provided in the
  consultation document. Schemes will be able to assess how the new score
  would have affected their 2014/15 levy had the new model been in place for
  this year.
      longside the document we will publish a summary from Experian of the
     A
     work done in constructing the model, and its design, and an evaluation
     from PwC.

    Published March 2014
    Contact the Pension Protection Fund
    Tel: 0845 600 2541
    Email: information@ppf.gsi.gov.uk

Actions for schemes
1.	The first priority for schemes and advisers should be to ensure that up to
    date and accurate information is held on Exchange and the public sources
    Experian will be using for data.
2.	Experian will use the contact information supplied through Exchange
    to contact schemes with the information they will need (and the
    process that will need to be followed) to access the web-portal. So it is
    particularly important to ensure that email addresses are kept up to date.
    In particular, schemes should ensure that the levy contact is correct.
3.	As in the past, the information schemes supply regarding the sponsoring
    employers will be used to identify employers and allow them to be
    scored. Experian are undertaking this task from scratch, so ensuring that
    employers are clearly and accurately identified is important. This will
    maximise the benefit of being able to check the data Experian are holding
    on employers before scores are used in the levy.
4.	For UK companies, and charities that submit accounts to Companies
    House, Experian will collect accounts from there. For charities not filing
    with Companies House, the Charity Commission and its Scottish and
    Northern Irish equivalents will be the source for accounts.
5.	Once scores are available, we encourage schemes to check them. Verify
    that the employers identified and the data held are accurate and up-to-
    date, or authorise advisers to check on the scheme’s behalf. It will also
    be possible to register for free alerts when scores change to simplify
    monitoring. Advisers will also be able to access data about their clients
    using Experian’s BIS IQ platform, a paid for service which allows for data
    on a large portfolio of clients to be managed.
6.	We also encourage stakeholders to contribute to the consultation to be
    held from end May, which will include a range of information about the
    PPF-Specific Score and will publish the draft levy rules on insolvency
    scoring.
7.	An additional consultation in the autumn will accompany the Levy
    Estimate and our proposed levy scaling factor for the three years to
    2017/18. This will include the draft levy rules in full for 2015/16. However
    we encourage stakeholders to provide comments in response to the May
    consultation.
8.	We intend capturing scores for use in the PPF-specific model from
    October 2014, though this is subject to the above consultation.

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