Occupational Pension Schemes (Levy Ceiling) Order 2006

So far, we have achieved three sets of instruments in the time expected by the officials who guide us so well. I am rather afraid that this order will overrun the timing proposed. In relation to the risk-based levy order, there is a problem, which the Minister knows well, of the £775 million ceiling that the board of the PPF may charge pension funds as insurance against either their parent firms or, more likely in the current climate, their funds failing to meet their long-term liabilities. It is a very large sum and, first, I would like the Minister to confirm that it is a total levy; that is, is this the maximum amount of income that the PPF could achieve in the next year, which of course is what we are talking about, composed of both the basic levy and the risk-based levy? Secondly, in his introduction to the levy regulations and, again, to this order, the noble Lord mentioned a maximum of 0.5 per cent of the deficit which would be charged to any one fund. Has he any idea what that may mean in cash terms? It seems likely—he will correct me if I am wrong—that the greatest risk pertains to the smallest funds, although there are large funds with large deficits in their pension funds that are vulnerable. We hear regularly of firms, such as Rover, which I know—the Minister told me last year, and I listen—is not so brittle that its pension fund will not come into the PPF, although some of its suppliers’ funds most certainly will. By definition, they are smaller firms, and there are funds which will scream blue murder at the levy they are asked to pay. At least one noble Lord has approached me on this, and it stands to reason that the higher the levy, the less money there will be to go into the pension fund. So—although this order is all about a capped levy—what is the minimum amount that any firm must pay? I realise that this is not an easy question to answer, as there must be some schemes that, even in today’s dreadful occupational pension climate, carry no risk at all, so would have to pay only the basic levy. What would this be in monetary terms? Is it percentage-based, or a flat rate? The Chancellor has spent hours, if not weeks, of his life since 1997 telling us how brilliantly the economy is doing and will do, in speeches and Budget and pre-Budget statements. However, his expectations have not matched up with reality, as many outside economists have been telling us. He even had to adjust the economic cycle, so as not to break his golden rule. So on what does the board base this ceiling? On an economy doing well, or badly? Is this £775 million likely to increase or decrease, or is it just a punt to see how the land lies—next year being the first full year of the operation? Does the Minister expect it to go up or down in subsequent years? I accept what he said about raising it by inflation, but this is complicated by the maximum 25 per cent addition which may happen. It is no good asking the board, of course, because this is a political question that should be answered politically by the Minister. I accept that the ceiling has been set at a level lower, as the Minister said, than the board would have liked. That level was an even greater £1.15 billion, which would have given the board a whopping 34.8 per cent headroom to cover emergencies. No wonder there were screams when it went out for consultation. I observe that £675 million was briefly considered. As the Explanatory Note says, that would not even give the PPF one year’s increase at the maximum of 25 per cent. Anyone reading these words would feel a cold chill blowing across their heart. They suggest that, rather than being occasionally allowed a maximum 25 per cent increase on the previous year’s ceiling, this will become the norm. That would be duplicitous in the extreme. It would mean that next year’s ceiling would be £969 million, and £1.211 billion in 2008-09—almost identical to one of the options consulted on this year. The Government should come clean on this: is this what pension schemes can expect in only two years’ time? It is therefore not surprising that the CBI is beginning to panic on behalf of its members. Only the other day, we learned that the upper limit of fees collected by the PPF would increase from the projected £300 million indicated at the start of the then Pensions Bill’s passage through Parliament. It was then upgraded to £600 million a little later, and to the £775 million for 2006–07 across the whole of the occupational pensions industry that we see in this order—that is two and half times. The Minister will no doubt have noted the comments of Mr Cridland, deputy director-general of the CBI, who said only this month: ““Business saw that sum””—the £300 million—"““as a price worth paying to protect scheme members’ benefits. But the potential for an increase to £775 million in the first year of operation would be wholly unacceptable to UK firms””." Where will it all end? Will the latter figure go up and up over the years? If so, the deficits will continue, which is not in anyone’s interests—those of the Government, who need the support of business; the future beneficiaries; or the firms themselves, who so desperately want to reduce their pension fund liabilities. A rising stock market, such as we have at the moment, does not help, as funds are discouraged from putting money into stocks and shares. Anyway, the stock market is vulnerable, not only to international considerations but to the Government’s interference. The noble Lord, Lord Oakeshott of Seagrove Bay, and I continue to complain, and rightly so, about the £5 billion a year tax relief on dividends that has been stolen from funds; and, more recently, about the scarcity of long gilts, making them even more expensive with the result that resumption yield is at rock bottom. I am pleased to note that yields have risen fractionally in the past few weeks. The fact remains, however, that they are still very low historically. Pensioners will therefore suffer in the future. The likelihood of more schemes coming into the realm of the PPF is currently increasing by leaps and bounds. In this connection, how many schemes is the PPF now administering, and how many payments have been made to individuals? The fact remains that the Government are responsible for a treble whammy on pension funds: double tax relief on income—which the Government still maintain was unfair—has been removed, meaning that funds have less income and therefore less to invest resulting in less money for immediate calls on the fund; less money on the stock market, which by definition means a depression in the FTSE indices; and now the problem of gilt redemption yields. On top of all that, we had the Revenue persuading firms to take pension holidays. Although we approve of the risk-based levy, we know that the Government are to blame for the amounts that are collected. How are the Government going to get pension funds out of this vicious circle and so negate the need for a risk-based levy?