Occupational Pension Schemes (Levy Ceiling) Order 2006

I think that is broken down into scheme membership, but if that is an error I will let the noble Lord know. No fraud or ombudsman levy will be charged for 2006–07, and those two would be liable to be paid above the ceiling if ever the levy reached the ceiling. The noble Lord, Lord MacGregor, acknowledged that I had paid tribute to many companies that are doing whatever they can to act responsibly. He then asked me to respond to the question of public sector pension provision. Noble Lords are probably tired of hearing me on this, although I am happy to go into details. The agreement that the Government reached with the unions was significant, in that the outcome was that new staff joining those schemes will have the normal retirement age of 65, as opposed to 60 at the moment. Turnover is relatively high in the public sector. In eight years’ time around one-third of the workforce will be made up of new entrants. In 12 years’ time it will be around half the workforce. The new agreements will apply to the later retirement age. In 20 years, two-thirds of the workforce will be made up of new entrants. In some ways I would argue that many private companies, in closing DB schemes for new entrants, have maintained those schemes for others. I know it is a mixed bag and that each company has dealt with this separately, but I think that it is unfair to say that the Government have not sought to approach this in a responsible way and in the revenue envelope given to the people negotiating it. The noble Lords, Lord MacGregor and Lord Skelmersdale, referred to the original RIA estimate of £300 million and asked how that has risen to £575 million. That estimate was based on December 2003 data. It has been updated to take account of current interest and mortality rates. The PPF has undertaken the calculations itself, but it is notable that if one takes the calculation of the Government Actuary’s Department—its figure comes out at about £560 million—it is pretty close to the eventual figure that the PPF arrived at of £575 million. The levy was subject to consultation which ended on 23 June 2006. The levy cost is controlled by legislation, in the sense that it cannot be increased by more than 25 per cent in any one year, and it will be capped at the ceiling set by Parliament. The noble Lord, Lord Skelmersdale, asked about the general economic position of the country, the impact of pension deficits and the action that business has to take to meet those deficits. Clearly, this is an issue that companies have to consider very seriously, but I thought he might have also referred to the great progress this country has made over the past few years—for instance, the annual rate of business investment growth from 1997-2004 averaged 4.5 per cent. I would be foolish to deny that business faces many challenges at the moment. I am confident, from what I have seen from the action of many responsible companies, that they are finding a way through. That does not detract from the challenges they face. I also think that the general approach the Government have taken—the way the Bill was taken through Parliament was extremely helpful in forming the eventual outcome and establishing the PPF—and the philosophy behind it is the right one. In general, I think we have received support for that. On the comments of the noble Lord, Lord Skelmersdale, let me make it clear that the £775 million is not the levy; it is the ceiling. There was some confusion and I think that the CBI confused that in its initial understandings. Noble Lords have asked me to estimate what the ceiling is likely to be in the future. I cannot do that. It clearly would be wrong for me to do that. It is not certain that the levy ever will reach the ceiling. The purpose of the ceiling is to provide a defined limit on the potential growth of the levy, but also to ensure that the PPF has some financial flexibility, should it require it. It means that the levy may not reach the level of the ceiling, or may do so only in an emergency or over several years. Obviously, in the end, the responsibility for calculating and setting the levy remains with the PPF and not the Government. Of course one hopes that, with the requirements of scheme funding and the many incentives the PPF has put forward for employers to better fund their pension schemes, over the long term the levy will fall. That must be our hope. The noble Lord, Lord MacGregor, asked a number of detailed questions about the £775 million and referred to the question of presentation and remarks in the explanatory memorandum. To sum up what I said in my opening remarks, the burden to business was a key concern of the Government in setting a levy ceiling. We consider that the £775 million will provide some reassurance to business that the levy cannot increase without limit. Although one might criticise the word ““presentation””, we are trying to provide some reassurance to business and show that the Government understand some of the difficult decisions that businesses have to make about the cost of pension deficits. The noble Lord asked what would happen if the levy reached the ceiling. The reassurance that I give him is that we would have to return to Parliament to seek a further rise to the ceiling. The noble Lord, Lord Skelmersdale, raised another old friend—the dividend tax credit. He will know that we reject the argument that it has had a substantial impact on pensions. I would also say that I do not recognise the £5 billion figure that is often cited. I refer him to the work of the Pensions Policy Institute in that area, but I have done so on several occasions and I fear that he has not departed from the figure of £5 billion. I fully understand the question of bond yields, which has been the subject of considerable comment in City pages in recent weeks. Obviously, Her Majesty’s Treasury and the Debt Management Office have responsibility for gilt issues. The Economic Secretary to the Treasury chaired consultation meetings with gilt market participants on 1 February as part of the usual process that precedes the setting of the DMO’s remit for next year. I understand that there was consensus at the meeting that gilt issuance next year should be further skewed towards long maturities. Views expressed at that meeting will inform the Treasury’s decision about the DMO’s finance and remit for the next year. I finish with a correction. Apparently, I stated that the PPF consultation ended on 23 June; of course, it was 23 January. Having answered those points, I commend the order. On Question, Motion agreed to.