PPF: 'Steady as she goes' approach for 2016/17 levy

The pensions lifeboat has trimmed its aggregate funding requirement for the 2016/2017 levy year to £615m, down from £635m in 2015/2016.

Chris Collins, chief policy adviser at the PPF, said the latest consultation follows substantial changes in the method used for assessing risks to scheme sponsors pushed through at the end of last year.

The big message is that the best way to reduce your levy is to reduce the risk that you pose… whether that’s through deficit reducing contributions or pledging assets to the scheme through the contingent assets framework that we have in place

Chris Collins, Pension Protection Fund

“One of the things we try and do is keep the rules as stable as we can for a three-year stretch,” he said.

“[The] 15/16 year which we announced last year was the first of three years; now looking at 16/17 we’re trying to keep things very much steady as she goes.”

Collins said the current funding position of UK schemes is as “weak as it’s been” and schemes must continue to focus on broad risk reduction measures to improve their levy position.

The aggregate deficit of the 6,057 schemes in the PPF 7800 is estimated to have increased to £280.4bn at the end of August 2015, from a deficit of £254.2bn at the end of July 2015.

“The big message is that the best way to reduce your levy is to reduce the risk that you pose… whether that’s through deficit-reducing contributions or pledging assets to the scheme through the contingent assets framework that we have in place,” said Collins.

Invoice surprises

Over the past four or five weeks corporate defined benefit schemes across the UK will have received their invoices for this year’s levy payment.

This is the first year that schemes’ insolvency risk has been assessed by a new bespoke framework from Experian, which extracts scheme and sponsor data from company reports and accounts.

Following last year’s consultation, the PPF said it anticipated the move to Experian from former risk-model provider Dun & Bradstreet would catalyse “a significant redistribution of levy… with all bills seeing some change”.

Research undertaken by the lifeboat predicted that just under a third of schemes (32 per cent) would see a levy reduction in this year’s invoice, while a quarter could experience a significant increase in their levy payment.

“The feedback we’ve had to date hasn’t suggested [there are] enormous problems with the move to Experian,” said Collins.

“We’re hopeful the new model is able to be a significantly more predictive measure – it focuses on the things that really matter."

Ben Fisher, actuary at consultancy Xafinity, said the impact schemes would feel from the changes would vary on a case-by-case basis.

“The new model really does use the hard numbers and accounting data, and is much less subjective and much more transparent – there is a real variation scheme by scheme,” he said.

Kevin Burgess, head of Punter Southall’s levy consulting team, said there were “winners and losers” among schemes as they received this year’s invoices.

“It’s important both sides [the scheme and sponsor] act together,” said Burgess. “Both are trying to do the same thing here – to reduce the levy.”

28-day window

Burgess said there is a 28-day window for schemes to appeal the value of this year’s levy and he urged schemes who have received their invoices to check the data thoroughly.

“While the deadlines to provide new information to influence the 2015/16 levies have passed, there may still be scope to appeal invoices that are not calculated in accordance with the PPF’s published rules,” he said.

Sarah Woodfield, policy adviser at the National Association of Pension Funds, said most schemes will not be shocked when they open their invoices.  

“We understand the PPF online portal has had a very high access rate. The portal gives an indication of what the levy will be and has given schemes the ability to check for inaccuracies, resubmit more complete accounts that may inform a better levy rating and even to launch an appeals process if need be,” she said.

“It is worth remembering that the changes have been introduced to create a scoring process that is clear and transparent.

"This will help to ensure the final levy score is much more representative of the actual risk that each scheme poses to the PPF and ultimately to scheme members."