A levy rule for schemes without a substantive sponsor

The PPF consulted in March 2017 consultation on a levy rule for schemes without a substantive sponsor.

The consultation aims to provide a transparent way of levying schemes that continue to run on without a substantive sponsor under the terms of an ongoing governance arrangement so that these rules could be implemented if such a scheme came into existence within the 2017/18 levy year. The starting principle would be that the scheme would be levied based on the risk of its funding position deteriorating.

The PLSA’s response to this consultation, whilst recognising the challenges involved in devising new rules for novel structures, pressed for the PPF to consult more widely on the options for levying schemes without a substantive sponsor in its forthcoming consultation on the PPF’s third triennium. We felt that there is insufficient evidence in the consultation to demonstrate that a well-funded and well governed scheme without a sponsor is necessarily of greater risk than a scheme of any level attached to a weak sponsor. A number of other concerns with the consultation were that:

  1. The method proposed for levying schemes without a substantive sponsor varies considerably from standard levy rules.
  2. It is unclear what method the PPF would use to wind-up the scheme when it’s funding level falls below the designated threshold.
  3. ‘Put options’ are typically used to hedge exposures and are usually optional for the counterparty; they are also not, strictly speaking, insurance.