Pension schemes will face difficulties in challenging the levy amounts they are required to pay to the Pension Protection Fund after the High Court ruled in the funds favour
30 JANUARY 2014 | BY JUDITH UGWUMADU
The ruling, issued last week, means the PPF's cash demands stand even if they are based on out-of-date financial information.
The case involved the West of England Ship Owners Insurance Services Limited Retirement Benefits Scheme, which challenged the PPF when it increased the scheme's levy from zero to £168,000 in 2010/11.
The scheme trustees complained to the PPF ombudsman that Dun & Bradstreet, PPF's credit rating agency, had used old information to calculate its risk score. This information led to the PPF to conclude that the mutual insurer was less financially sound that it was and therefore increasing its levy demand.
Following this initial complaint, the ombudsman found in the scheme's favour, but the PPF appealed the decision at the High Court, which ruled in the fund's favour.
A PPF spokesperson said: 'We are pleased with the judgment as it confirms that our approach to the use of failure scores in the levy calculation is correct.
'It underlines how important it is for all levy payers to engage with our insolvency risk provider to make sure they have all of the information they need to provide us with accurate failure scores for use in our levy calculations. This particularly remains the case when we move to a new insolvency risk provider for the triennium commencing in 2015/16.'
Lesley Browning, partner at solicitors Norton Rose Fulbright, which acted for the West of England Ship Owners Insurance scheme, told The Actuary there was little chance of D&B's procedures being 'attacked' by schemes in this way in future. 'In effect, what it means is that whatever D&B says, goes,' she said.
But she noted that when the PPF switches to Experian as insolvency risk provider to calculate the scores for the 2015/16 levy 'the system might be a bit different then'.
'The PPF are certainly talking about Experian providing a more bespoke service, although I'm not sure that anyone actually knows what that means. But I suspect that this element of the process won't change much because I think the levy rules will just be updated to say that whatever Experian provides, the ordinary cause of business is what goes.'
Nick Griggs, partner at Barnett Waddingham, suggested that the ruling was a timely warning that data issues arising from the crossover to Experian should be identified and addressed promptly to lessen the risk of overstated levy charges.
He said: 'Even before the switch to Experian comes the new D&B model for calculating insolvency probabilities, which may yet come into effect by 31 March this year and may focus on new areas where companies have not had the opportunity to review and optimise their information. I would not expect retrospective changes to the month-end D&B scores to be allowed so it will be vital that you review your new D&B score promptly.'