Insolvency Risk
6.1 Summary
•
T he insolvency rate of the PPF universe (number of insolvency events for sponsors
of PPF-eligible schemes divided by the total number of scheme sponsors) has
fallen sharply since the second quarter of 2013, reaching 0.32 per cent (four-quarter
moving average basis) in the second quarter of 2015.
•
T he UK economy has seen strong growth since early 2013. GDP in the second
quarter of 2015 was 5.2 per cent above the pre-crisis high in the first quarter of
2008, despite the challenging environment in the eurozone, the UK’s biggest
trading partner.
•
S maller schemes tend to have higher insolvency probabilities. The average one-year
ahead insolvency probability for schemes with fewer than 100 members is 1.1 per
cent, considerably higher than for schemes with between 1,000 and 4,999 members
which stood at 0.53 per cent at the end of the first quarter of 2015.
•
F rom Levy Year 2015/16, Experian is the new provider of insolvency scores for the
purpose of the PPF levy determination. In order to improve predictive power and
account for the different composition of the PPF universe of companies as opposed
to the UK broad corporate sector, Experian has constructed a PPF-specific model.
•
The model is calibrated to predict insolvencies within the PPF-specific universe
of employers that sponsor eligible DB pension schemes. In addition to improved
predictability, the PPF-specific model provides greater transparency and stability
and increased resilience due to the use of, primarily, published financial data, and
additionally is less vulnerable to manipulation8.
6
Further information on the Experian model can be found on the PPF website:
www.pensionprotectionfund.org.uk/levy/Pages/LevyPublications.aspx
8
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The PPF-universe
insolvency rate has been
trending down since
Q2 2013.
Count of insolvency events over quarter
Figure 6.1 | PPF universe insolvency rates*
60
Insolvency events in surplus at assessment date
Insolvency events in deficit at assessment date
Four-quarter moving average of total
insolvency events
50
40
30
20
10
0
05 05 06 06 07 07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 15
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20
2
4
4
2
4
2
2
4
4
2
2
2
4
4
4
2
4
2
4
2
Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q
2
Source: The UK Insolvency Service and the PPF / The Pensions Regulator
*There are around 2.7 million companies in the UK, compared to around 14,000
in the PPF universe.
Figure 6.2 | UK company liquidations
7%
0
2000
3%
3000
1%
4000
-1%
5000
6000
-3%
7000
Real GDP growth, YoY (LHS)
Number of liquidations (Quarterly, RHS)
-5%
8000
-7%
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Q2
5
Q2
3
Source: O
ffice for National Statistics and the UK Insolvency Service
20
1
Q2
20
1
Q2
20
11
Q2
20
09
Q2
20
07
Q2
20
05
Q2
20
03
Q2
20
01
Q2
19
99
Q2
19
97
Q2
19
95
19
93
19
9
1
Q2
9000
Liquidations (inverted scale)
1000
5%
GDP Growth
GDP growth has been
strong since the end of
2013, and GDP in Q2 2015
was 5.2 per cent above the
pre-crisis level in Q1 2008.
The number of company
liquidations has been
trending down since 2013.
Figure 6.3 | A
verage one-year ahead insolvency probability based on Experian
failure scores* by scheme size as measured by number of members,
as at 31 March 2015
Average insolvency probability
1.2%
Smaller schemes tend to
have higher insolvency
probabilities.
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
Under 100
100-999
1,000-4,999 5,000-9,999
10,000
and over
Number of members
Source: PPF/The Pensions Regulator
*Experian failure scores are converted into credit ratings. These are then converted
into the probability of insolvency over the next year. This conversion uses a mapping
matrix that takes into account data on historical company insolvencies.
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