The Pension Protection Fund has proposed a new levy rule for schemes without a substantive sponsor in its consultation document published today 20 February 2017.

The PPF aims to include the new proposal, which is a new charging methodology based on a commonly used pricing model or valuing options, into the 2017/18 Levy Determination.

As noted it its Autumn consultation, the PPF has been considering how to charge a levy which does not have a substantive sponsor after the restructuring of its pension arrangements. This is due to the fact that the PPF's standard methodology would not be suitable for this type of scheme.

Instead, its newly proposed methodology, which is widely used to price comparable risks, ensures that unsponsored schemes will be charges a proportionate levy, reflecting the true risk that is poses.

The proposal also recognises that a scheme with no sponsor is likely to always pose a greater risk than an identical scheme which has a sponsor.

PPF executive director and general counsel David Taylor commented: “A key principle of the PPF levy is that it is as reflective of risk as possible. Schemes without a substantive sponsor present a different risk to the PPF from that posed by other schemes. We have developed a new approach to charging such a scheme an appropriate risk-reflective levy, not least to ensure there is no risk of cross-subsidy from existing levy payers.”

Taylor added: “We will always operate in the best interests of our members and levy payers. This is new and evolving terrain and we need to be able to react with an appropriate levy if it is needed. Few if any schemes would themselves be directly affected by this rule in 2017/18 but we are keen to hear the views of stakeholders to
inform the development of the framework.”

The consultation will close on 6 March and the final 2017/18 Levy Determination will be published by 31 March 2017.

The PPF added that more "substantial changes" will be considered for the next triennium starting in 2018/19, on which the body will consult in spring this year.

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