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PPF seeks comment on potential levy changes, employer scorecards

Pension Protection Fund, London, launched a consultation paper outlining plans for its levy for the three years starting April 1, 2018, including proposals to revise so-called employer scorecards related to their risk of insolvency.

The lifeboat for the defined benefit funds of insolvent companies in the U.K. wants to introduce two new scorecards and to rebuild existing scorecards for which predictive power of these measures has been weaker, said a news release Thursday. These proposals aim to improve predictive power and ensure they are better tailored to company size, with small- and medium-sized enterprises and not-for-profit firms paying levies that better reflect their risks. The changes could see two-thirds of pension fund sponsors paying reduced levies.

A second proposal would see the adoption of credit ratings for some of the largest employers and a specific methodology for regulated financial services entities, ensuring the best possible assessment of insolvency risk for some of the PPF's largest levy payers.

The proposals were developed in partnership with Experian, a business information supplier and credit bureau that provides the PPF with insolvency scores, and associated levy categories and rates for employers, following engagement with stakeholders over the past three years.

David Taylor, PPF executive director and general counsel, said the release accompanying the consultation document that the proposals would lead to a more accurate assessment of the risk of employers becoming insolvent. “Some schemes — particularly some of those very large employers — would see an increase, but smaller employers would, in aggregate, see reductions in levy.”

The PPF is also seeking comments on other areas, including the possibility of a levy discount for good governance and a reduction in the administrative burden for smaller pension funds, as suggested in a report by the Work and Pensions Select Committee last year.

It also wants to know whether it should continue to measure scores monthly, or whether the PPF should move to an assessment as of March 31 of each year beginning in 2018.

The consultation document is available on the PPF's website. The consultation period closes to comment May 15. There will be a second consultation period in the fall, which will set out conclusions and seek input as to how these will be reflected in the levy rules for the next period.