Punter Southall welcomes Pension Protection Fund’s latest consultation paper

16 December 2005, Punter Southall, the national actuarial consultancy firm, has given a broad welcome to the changes announced today by the Pension Protection Fund to the way in which the risk-based levy will be calculated from 2006 onwards.

In particular, the firm welcomes the decision to replace the ten bands of insolvency risk originally proposed with 100 bands corresponding to each individual ‘failure score’ from 1 to 100.

However, Punter Southall warns that the use of 100 bands for insolvency risk could simply be introducing spurious accuracy unless concerns about the methodology used by Dunn and Bradstreet* in assessing failure scores for the levy are allayed.

David Cule, Principal, Punter Southall, comments:
“Under the ten band system, we were seeing companies for whom a difference of only 1% on their failure score could more than double their risk-based levy. Using a separate probability for each percentage individual insolvency score is a sensible solution that considerably reduces the cliff-edge effects.

“However, Dunn and Bradstreet use a complex and secret model that takes account of a large number of different factors. Whilst the Pension Protection Fund has published a list of the factors on which Dunn and Bradstreet base their failure score, there is no indication of the relative weight given to each of the factors. This means that companies unhappy with their failure score do not know the best action to take to improve their failure score and hence reduce their risk-based levy. Without transparency on this issue, the allocation of companies to 100 risk bands has all the appearance of a lottery.”

* Dunn and Bradstreet are the credit scoring agency selected by the Pension Protection Fund to assess the insolvency risk of companies for the purposes of the risk-based Pension Protection levy. Each company is given a ‘failure score’ relating to the percentage of companies who are more likely to become insolvent over the next year – so a failure score of 98 means that 98% of companies are more likely to become insolvent over the next year than the firm in question.

For media information please contact:

Penrose Financial

Roman Townsend, Penrose	020 7786 4875
Julie Allison, Penrose	020 7786 4872

Notes to editors:

Founded in 1988, Punter Southall now has over 320 staff including Principals, with offices in Birmingham, Edinburgh, Glasgow, Guildford, London and Wokingham.

Punter Southall & Co is a member of the Sanlam Financial Services (SFS) group of companies.

The firm prides itself on its ability to combine the highest technical expertise with its own unique, consultative, creative and innovative approach.

In conjunction with other SFS Group businesses, Punter Southall & Co can provide the full range of pensions actuarial and investment advice, consultancy and administration services. Its clients, in the UK and overseas, span the full range of pension schemes and related employers, in terms of size, nature, complexity and business sectors.