The Pension Protection Fund (PPF) is proposing changes to its levy rules for the next triennium from 2018/19 to develop a more accurate assessment of insolvency risk.
In a consultation paper published on 23 March, the lifeboat fund outlined two key changes that could result in almost two thirds of schemes getting a levy reduction.
The first is to ensure scorecards are better tailored to company size so that small- and medium-sized enterprises (SMEs) and ‘not-for-profits' pay levies that better reflect their risks. The PPF said it wants to remodel how employers are allocated to scorecards, introduce two new scorecards and rebuild existing scorecards where predictive power has been weaker.
The second proposal is aimed at ensuring the best possible assessment of insolvency risk for some of the larger levy payers. The PPF wants to use credit ratings for some of the largest employers and a specific methodology for regulated financial services entities.
These plans have been developed in partnership with Experian following engagement with stakeholders over the last three years, most recently through an industry steering group.
The changes would particularly benefit smaller employers, while some larger employers may end up having to pay higher levies.
PPF general counsel David Taylor (pictured) said: "We believe our proposals lead to a more accurate assessment of insolvency risk. We expect almost two thirds of schemes to see a reduction in levies. Some schemes - particularly some of those with very large employers - would see an increase, but smaller employers would, in aggregate, see reductions in levy."
Taylor said the overall levy framework "is working well" and that it has only proposed changes where there is "a compelling case to do so".
The PPF is also seeking views on the benefits of continuing with monthly scores or moving to an assessment on 31 March each year from 2018. Scores will only be measured, at the earliest, from October 2017 for the first year of the triennium.
Taylor added: "I am looking forward to hearing our stakeholders' views on the proposals in this document. Their feedback is tremendously important and we are grateful for our levy payers' continuing engagement.
"I'm particularly grateful for the ongoing assistance, and challenge, of our industry steering group in this process. I'd encourage all those with an interest in our proposals to register for one of our events and, from Monday, view the implications for their scheme and its employers on the Experian portal."
The consultation will close on 15 May. A second consultation will be issued in the autumn, setting out the conclusions and seeking input as to how these have been reflected in the levy rules for 2018/19.
Aviva Life & Pensions has concluded an £875m buy-in with its own staff pension scheme, following on from a similar transaction last year.
Just Group has completed a £74m pensioner buy-in with the UK pension scheme of a US-listed engineering business.
The Smiths Industries Pension Scheme has secured a £146m buy-in with Canada Life in its fourth bulk annuity and its sponsor’s tenth overall.
The Prudential Staff Pension Scheme has entered into a £3.7bn longevity swap with Pacific Life Re, insuring the longevity risk of over 20,000 pensioners.
The Baker Hughes (UK) Pension Plan has secured approximately £100m of liabilities through a buy-in with Just Group.