Experience of Experian - Manage your Levy wisely

The Experian-based Pension Protection Fund (PPF)Levy calculations have been widely heralded for quite some time.  With 31^st March 2015 approaching the dust will finally start to settle and Trustees will be able to see, with more certainty, what this means for their Scheme.

The 2015/16 Levy is based on the Employer’s Experian score over the period from 1^st October 2014 to 31^st March 2015.  In addition the 31^st March is the deadline for updating Exchange (the tPR website) with any relevant information for Levy purposes (e.g. guarantees).

The level of certification and related discounting against the PPF levy seems to increase each year which is adding layers of additional complexity.  This means that the cost of taking advice on managing the levy is becoming more material which makes it difficult to decide where this provides value.  From an advisory standpoint it is also difficult as advisers must drill deep down into the calculation before confirming if savings can be found, by which time they have already accrued costs.

The creation of the Experian portal has provided visibility that was not available with Dun & Bradstreet.  Therefore, Employers and Trustees can work together to get the most from this system and ensure the PPF Levy is correctly managed.  This may also assist in deciding if PPF levy management advice is appropriate.

The changes have created a number of “winners and losers”.  The calculation differs greatly from Dun & Bradstreet and therefore some Employers are finding considerable changes, both positive and negative, particularly those Employers at the low-end risk of the spectrum.  The Levy can vary from barely registering against Scheme expenses to being the highest expense depending on the Employer’s rating.  With this in mind, the Levy is not just an Employer issue.  Ultimately, for Trustees, any payment towards a PPF Levy is potentially Deficit Recovery Contributions lost.  Employers often aggregate total pension spend and consider the Levy as part of their total pensions expenditure.  More directly, some Schedules of Contributions will implicitly include the Levy which further emphasises the importance on checking the Scheme information closely.

It is important for Trustees and Employers to remember that the Experian scoring methodology is not infallible.  The basic calculation can be thrown out by changes in accounting periods, exceptional accounting items and other quite simple issues.  As an example, a Scheme which I look after was recorded on the wrong Experian scorecard: without checking this point the final levy payment would have been 10 times higher.

In summary, like all Scheme expenses the PPF Levy should be monitored closely and considered on a regular basis.  The Trustees should make use of all available sources of information and take advice where practical to manage the levy correctly.  The Trustees should utilise finance contacts at the Employer in reviewing the Experian portal as nobody is better placed to assess the Employer information stored.  If all this is followed then come September/October, there should be no surprises.