Understanding the new model for assessing insolvency risk

How will the revised Pension Protection Fund (PPF) levy estimate affect employers' insolvency ranking? Naomi Brown, senior associate at Sackers, explores the immediate impact of the new levy estimate.

Original news: PPF announces 2015/16 levy estimate,

Following a consultation between May and July 2014, the PPF announced the levy estimate for 2015/16 will be set at £635m, nearly 10% lower than the 2014/15 estimate. The PPF also announced the launch of a consultation on detailed rules for the 2015/16 levy, which will close on 13 November 2014.

Why is the PPF introducing a new model for assessing insolvency risk?

The primary reason for moving to a new model is to improve the levy by:

• ensuring it can more accurately reflect the risk posed by individual schemes (ie ensuring that schemes pay their fair share), and
• making the assessment process more predictive and transparent for schemes and employers

What are the main aspects of the new model?

The main aspects of the new model are:

•  it is specifically tailored to the 'PPF universe' in that it focuses on the insolvency experience of employers actually sponsoring defined benefit schemes
• it has a much stronger focus on financial rather than non-financial information as this has proved most predictive and reliable, and
• it is more transparent in that the basis on which scores are calculated will be set out in the levy rules and schemes, and employers can s