2/2/2010
By Sophie Baker
The Pension Protection Fund (PPF) has confirmed that employers it deems to be the most robust against going bust will face a 68 per cent increase in its levy payment for 2011.
When calculating levy invoices for 2011/12, employers with the best possible ‘failure score’, will be allocated a 0.03 per cent of going bust that year. Previous levy calculations have carried a 0.01 per cent chance, therefore increasing these employers’ risk-based levies by 68 per cent.
“The good news for strong employers is that only part of their levy is rising – this change will not add to the cross-subsidy they provide through the flat-rate part of the levy,” commented Joanne Shepard, a senior consultant at Towers Watson. “But even very strong employers pay significant risk-based levies if their schemes are not well-funded, so a two-thirds increase can bite hard.”
And Shepard believes this could just be the tip of the iceberg: “The bad news is that this could be just a foretaste of the increased invoices they will receive in years to come. The PPF is reviewing how levies will be calculated in future years and its proposals could again lead to stronger employers paying more.”
The net effect of changing insolvency probabilities, which are attached to different failure scores, will be of increased levies for employers with failure scores of 90 to 100 on the 100-point scale that is used by D&B.
D&B is also changing the way failure scores are assigned to employers – a change which will sometimes have more impact on levies than using different insolvency probabilities for each failure score.
Companies operating in three or more regions will also be able to improve their failure score, therefore reducing their levies, as they can be classified as a ‘nationwide’ employer. Shepard added: “The PPF thinks that companies operating in more than two regions are more resilient because they can survive a local difficulty, and this will factor this into levies from 2011. Employers have less than two months to check if they are already classified this way and submit evidence if not, so will need to act quickly to take advantage of this.”
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