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UK High Court dismisses pension fund's fight for revised PPF levy

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A UK High Court judge has overturned the decision by the Deputy Pensions Ombudsman offering compensation to trustees after out-of-date data was used in a scheme’s levy calculation.

The case refers to the West of England Ship Owners Insurance Services Limited Retirement Benefits Scheme’s 2010-11 Pension Protection Fund (PPF) levy, when failure-score provider Dun & Bradstreet (D&B) used dated accounts to calculate a failure score.

The scheme’s sponsor is West of England Insurance Services, based in Luxembourg, with D&B’s local office charged with collecting the data used in failure-score calculations.

However, D&B Luxembourg only used the accounts for the scheme sponsor up to 2007, on the premise trustees must submit up-to-date accounts.

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This resulted in the scheme’s 2010-11 levy being significantly higher than anticipated or required given sponsor guarantees and its risk of insolvency.

After the trustees asked the PPF to reduce the levy using the current accounts and contingent assets, the lifeboat fund said it could not retrospectively change the score provided by D&B.

After appealing the PPF’s decision to the Deputy Ombudsman, in February 2013 it was ruled that the PPF did have the right to make amendments to a score after it had been produced.

The PPF was ordered to remove any interest payments on the delayed levy and provide £10,000 (€12,000) to the trustees for legal costs.

However, taking the case to the High Court, the lifeboat scheme won its appeal against the Ombudsman’s decision.

The court ruled the PPF did not have discretion to amend a failure score, or ask D&B to revise its score if calculated in its ordinary course of business.

It said there was no scope in the levy determination for the PPF to depart from a failure score provided by D&B, and that it was not unreasonable for the PPF to set stringent rules in levy determination, some of which the trustees failed on.

It was also not the PPF’s responsibility to consider whether D&B’s failure-score calculation was fair.

A lawyer acting for the trustees said that, while it was helpful the PPF’s powers were clarified, the end result for trustees was a levy that could not be based on a sponsor’s true risk of insolvency.

Lesley Browning, partner at law firm Norton Rose Fullbright, said: “Trustees and scheme employers must be careful to ensure D&B has up-to-date financial information at the relevant time.

“It will be interesting to see how Experian’s appointment, and the proposal that a bespoke failure-score system will be developed, will affect trustees and employers.”

Experian is expected to replace D&B as the PPF’s failure-score provider for the 2014-15 levy, providing a bespoke score system, details of which have been beset by delays.

Nick Griggs, partner at consultancy Barnett Waddingham, said the case should act as a timely warning that data issues arising from the switch to Experian needed to be identified and addressed.

”The issues are not directly related, but there is a clear parallel,” he said.

Commenting on the case, a PPF spokesman said the lifeboat fund was pleased with the decision, as it underlined its approach to using the failure score.

“It also 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,” he said. “This particularly remains the case when we move to a new insolvency risk provider.”

 

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