New risk model is a success, now stability is key

Last year was our first for calculating levy invoices using the new PPF-specific risk model. We are pleased that most respondents shared our view that the new model, which is statistically driven – based on experience of insolvencies among pension scheme sponsors – is a significant step forward.

Overall, consultation responses and feedback on the first invoices using the new model suggest it is working well. What schemes and employers desire now is stability.

The minor changes we have proposed for 2016-17 were well supported, particularly the moves to reduce the burdens of recertification for mortgage exclusions and asset-backed contribution structures.

Overall, consultation responses and feedback on the first invoices using the new model suggest it is working well. What schemes and employers desire now is stability

Details of these changes include:

• Certificates relating to investment-grade credit ratings, pension scheme mortgages and rental deposit deeds will be carried forward, rather than needing to be recertified. The PPF will check that ratings previously certified continue to be investment grade;

• Employer scores are changed to show the effect of certifications being carried forward so schemes can see the impact;

• New companies are able to submit interim accounts;

• There is a lighter touch approach to recertification for ABCs.

We have made some additional adjustments in response to helpful comments, including those relating to the exchange rate used to translate accounts to sterling, for which we are deferring implementation to 2017-18 following requests for a longer lead-in time.

Analysing suggestions

Some respondents did raise concerns about how the model works for their particular employer. Where there was strong evidence for a change, for example the use of interim accounts for new entities, we have amended the rules.

In many cases, however, the impact of suggested changes across the whole base of levy payers is far from clear. We will be examining these suggestions in more depth as part of our review of the framework for the next triennium, commencing with the 2018-19 year, on which work has already begun.

Impact of new financial reporting standard

In advance of the next triennium, we continue to consider whether any changes are necessary for 2017-18 to reflect the introduction of the new financial reporting standard FRS 102. We will be undertaking a detailed analysis of the impact of this with Experian as data become available.

Finally, now the last rules for 2016-17 have been published, schemes are able to estimate what their invoice will be and assess the merits of putting in place and certifying risk reduction measures.

This can both improve security for members and reduce bills, and is something we at the PPF are keen to encourage.

Chris Collins is chief policy adviser at the Pension Protection Fund