Occupational Pension Schemes (Levy Ceiling) Order 2006

rose to move, That the Grand Committee do report to the House that it has considered the Occupational Pension Schemes (Levy Ceiling) Order 2006 [18th Report from the Joint Committee and 25th Report from the Merits Committee]. The noble Lord said: As noble Lords are aware, the PPF is responsible for setting the levy and has undertaken two consultation exercises on the levy calculation and levy estimate, which is £575 million for 2006–07. The Pensions Act 2004 provides two controls on the levy: a maximum limit of 25 per cent by which the levy can be raised in any one year, and an overall ceiling on the amount of levy that can be charged by the PPF in the future. The order before noble Lords today sets the amount for the second of the two controls, the overall levy ceiling. It has been approved by HM Treasury, as is required, and it will set the ceiling at £775 million. I remind the Committee that the original estimate for the ceiling set out in the RIA that accompanied the then Pensions Bill was £600 million based on a formula of double the levy estimate, which was then estimated at £300 million. Applying that formula to the 2006–07 levy of £575 million would result in a ceiling of £1.15 billion for 2006–07. Given the concerns about burdens on business—and we have already heard something of that this afternoon—it was clear to the Government that this was too high and that we would need to revisit the approach to setting the ceiling. In doing so, we first considered whether there was an urgent need to cap and control the PPF levies to ensure their immediate affordability for business. In fact, given the efforts of the PPF to ensure the affordability of the levy, that is not necessary. A levy of £575 million is equivalent to £38 per scheme member. That is less than schemes’ administration costs—roughly £46 per member—and less than schemes’ fund management costs—approximately £43 per member. Affordability is also protected by the levy cap, which means that a scheme does not have to pay more than 0.5 per cent of its liabilities for the levy. In addition, schemes now do not have to pay any risk-based levy at all if they meet a certain funding level of 125 per cent, which is equal to full buy-out of the scheme liabilities.