Defined BenefitApr 20 2018

DB superfund may need special levy for funding

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DB superfund may need special levy for funding

The Pension Superfund may need a special levy calculation from the pensions lifeboat, FTAdviser understands.

The new fund, which will accept bulk transfers from defined benefit (DB) plans and consolidate them into one occupational pension scheme, won’t have a sponsoring employer, which means the same levy calculations used for other schemes cannot be applied.

A levy on DB schemes is one of the ways the Pension Protection Fund (PPF) funds the compensation payable to members of schemes that transfer to the pensions lifeboat.

FTAdviser understands the pension lifeboat is willing to create a special levy regime for the superfund.

A spokesperson at PPF said: "As proposals for pension scheme consolidation develop we will continue to keep the levy framework under review to ensure that we charge these schemes appropriate levies."

The superfund is being created by Alan Rubenstein, who until January was the head of the PPF.

Mr Rubenstein teamed up with City financier Edi Truell's Disruptive Capital and private equity investor Warburg Pincus to launch the new scheme, which already lined up an initial £500m of capital.

The PPF levy is payable by all UK DB pension schemes whose members would be eligible for compensation if the scheme employer becomes insolvent, and there aren’t enough assets remaining in the scheme to pay benefits at PPF levels of compensation.

The levy for DB schemes in 2018 to 2019 will be £550m, 10 per cent less than the previous year.

A similar case occurred with BHS last year, as the negotiations after the company went into administration in April 2016 ended in a £363m settlement with Sir Philip Green to fund a new independent pension scheme for 19,000 former BHS workers.

This new plan doesn’t have a sponsoring employer, which led the PPF to introduce new rules for ‘zombie’ pension schemes.

The PPF spokesperson added: "We aim to charge eligible pension schemes a levy proportionate to the risks they pose. Since its introduction in 2006 the levy framework has regularly evolved to better charge for those risks.

"In the last year this has included the use of credit ratings to reflect the insolvency risk of some employers, simplifying the certification of additional payments into schemes and a specific levy regime for where a scheme without a substantive sponsor is agreed."

maria.espadinha@ft.com