Update to the way the PPF calculates the risk-based levy

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On 29 May 2014, the Pension Protection Fund (PPF) published “Consultation on the second PPF Levy Triennium – 2015/16 to 2017/18”. The purpose of the consultation document is to set out the PPF plans in respect of the levy for the next three years from 2015/16. The consultation is due to close on 9 July.

One of the proposals in the consultation is to change the way in which the PPF calculates the risk-based levy. The consultation document sets out a new “PPF-specific” system of risk scoring; which could significantly affect the scheme’s risk-based levy. The proposals foresee a system of scorecards to segregate different types of organisations based on their insolvency risk. There will also be a separate scorecard for not-for-profit organisations.

The scorecards will create bands (akin to council tax bands) with a levy rate assigned to each band. Under the proposed new scorecard system, the PPF believes the aggregate levy will change by approximately £200 million. It is also believed that, while most schemes should hope to see a reduced levy, more than 600 schemes will see an increase in their levy invoice by more than £50,000.

In addition, the PPF has proposed substantial changes in the way schemes look to reduce and manage their levy. For example, private/group company guarantees will require trustee sign off that the guarantor is able to meet the amount stated under such guarantee and asset backed contribution vehicles (excluding property) will be discounted going forward.