Strong companies should expect higher PPF levies

Employers that the Pension Protection Fund believes have the least chance of going bust should brace themselves for higher PPF levies in 2011, according to Towers Watson.

When it calculates levy invoices for 2011/12, the PPF will assume that employers with the best possible 'failure score' have a 0.03 per cent chance of going bankrupt within one year, instead of the 0.01 per cent chance assumed in previous levy calculations.

After taking account of the knock-on effect on another part of the levy formula, this change would have added 68 per cent to these employers' risk-based levies had it been introduced in time for 2010/11.

Other strong employers will also pay more.

The net effect of changing the insolvency probabilities attached to different failure scores is increasing the levies for employers with failure scores of 90 to 100 on the 100-point scale used by DandB, the PPF's insolvency score provider (where a ranking of 100 is given to employers assessed to have the least chance of going bust).

Most employers with scores below 90 would pay less as a result of this change, though this would not affect those with risk-based levies that are already capped.

Joanne Shepard, senior consultant at Towers Watson, said: '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.

'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.

'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,' she added.

At the same time as revising the way that failure scores translate into insolvency probabilities, DandB is also changing the way that failure scores are assigned to employers in the first place.

Sometimes this change will have more impact on levies than using different insolvency probabilities for each failure score.

However, whether it increases or reduces levies will vary with the individual circumstances of each employer.

The PPF has also confirmed that companies operating in three or more regions will be able to improve their failure score and therefore reduce their levy by being classified as a 'nationwide' employer.

Shepard continued: 'The PPF thinks that companies operating in more than two regions are more resilient because they can survive a local difficulty and 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, they will need to act quickly to take advantage of this,' she finished.

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