Pensions - Articles - PPF levy and the change from Experian to D and B

The Pension Protection Fund (PPF) has released its first consultation outlining the changes that it is proposing to make as part of its three-yearly review of the PPF levy rules. This initial consultation focuses on the PPF’s decision to reappoint Dun & Bradstreet (D&B) as its insolvency risk provider, replacing Experian, its provider since 2014. While the PPF is proposing not to fundamentally alter its approach to the calculation of insolvency risk scores, the move to D&B will result in changes to the scores for most companies, with a minority seeing a significant change.

 Lewys Curteis FIA CERA, Associate and Corporate Actuary at Barnett Waddingham

 The move from Experian to D&B
 It seems only yesterday that the big news in the industry was “the move from D&B to Experian”, so it seems slightly odd to be travelling in the other direction so soon. However, this is not a move back to D&B’s commercial model. The PPF is retaining its bespoke “PPF-specific model” to calculate insolvency scores, so D&B will be using the same underlying model as Experian to calculate insolvency scores, with some minor structural changes and a recalibration to reflect recent insolvency experience.

 As well as minor changes to the underlying model, Experian and D&B take a different approach to certain processes that directly influence insolvency risk scores, e.g. data collection and identifying the parent company.

 Taking together, these differences will result in changes to the insolvency risk scores of most companies, with some companies seeing a material change in score.

 "The PPF estimates that around two-thirds of schemes will experience a change in the PPF levy payable as a result of the move from Experian to D&B."

 Which companies will be most affected?
 D&B has recalibrated the PPF’s insolvency risk model to reflect recent insolvency experience. This shows that the scorecard for the larger companies is under-predicting insolvencies, so an adjustment has been made to correct this. Overall, this means that larger companies may expect to pay a higher levy in the future, as insolvency scores will generally worsen, while smaller companies and Not for Profits may expect to pay a lower levy.

 Another significant change is the proposed discontinuation of the Standard & Poor’s Credit Model. This is currently used for regulated financial entities, but insolvency scores for these companies will now be calculated using the D&B model in line with the majority of other organisations.

 What should you do now?
 Companies and trustees can now access the new beta D&B portal to view their insolvency risk scores under the revised model. We strongly recommend checking that the information being used by D&B to calculate insolvency risk scores is correct, to ensure that future PPF levy invoices are being calculated correctly.

 For companies that have historically submitted accounts to Experian manually, this information will not be passed over to D&B, so action will need to be taken to submit this information to D&B. The PPF is proposing to capture D&B insolvency risk scores from the end of April 2020 to be taken into account in the 2021/22 PPF levy, so we recommend checking the new insolvency risk scores as soon as possible.

 The PPF’s consultation on the move from Experian to D&B closesd on 11 February 2020, with further consultations expected in the summer regarding the other aspects of the PPF levy calculation. 

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