Clause 142 - Pension protection levies during the transitional period

Pensions Bill – in a Public Bill Committee at 2:30 pm on 1st April 2004.

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Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne 2:30 pm, 1st April 2004

I beg to move amendment No. 218, in

clause 142, page 88, line 11, leave out from 'means' to '(within' in line 12 and insert

'a period of time no longer than two years after the initial period begins.'.

Let me explain the purpose of the amendment, although the more I read it, the more I wonder whether this is how it will come out in the wash. As we heard, the Government's position is that during the first year, the fund will collect about half of what they would expect it to collect in a normal year—say, £150 million. They recognise that it would, in some way, be unfair, or to use a more neutral word, inappropriate, to charge the full £300 million, if that is the correct figure—which we question, as the risk-based elements have yet to be incorporated. It is clear from the drafting of the Bill that the Government plan that the fund will collect the full £300 million, or whatever the figure is, from year two in any event—hence the amendment.

There is a certain symmetry in requiring employers or schemes to pay only half the levy until the risk-based elements are introduced. It would also give people an incentive to get on with things, so that the

lack of risk-based elements could be addressed sooner rather than later. The feeling in the industry is that a two-year period for the transition is probably unrealistically tight, purely in practical terms. It looks as though they would prefer a likely result of a transitional period of about four years, as we debated this morning, so that the levy structure would be in place five—that is one plus four—years after the PPF begins. I think that that was the way in which this morning's discussion went.

The wording of the Bill is far too loose. A lot of people would like to see some definite commitment. I appreciate that the Minister was clear about his aspirations this morning, but they are merely aspirations. Within that time scale, even if there is not a change of Government, there is likely to be a change of Minister. By that, I mean that the Minister will go on to greater things.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

Or maybe to draw his pension.

Even if the Government will not accept the amendment, which would put a two-year limit on the transitional period, would the Minister consider wording it so that it would tighten up the restriction on the length of the transitional period? That would ensure that the permanent levy structure would come into effect and the so-called transitional period would not be allowed to drift on endlessly. If Ministers are not prepared to accept a two-year maximum, why not recognise what they have already accepted in this morning's debates? A four or five-year maximum is appropriate and they should perhaps agree to that. People need some certainty, but they also need something based on reality. That would be a useful compromise.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

The clause sets out the provisions for the levies during the transitional period. The amendment seeks to restrict the length of time for which the transitional period will apply to two years. We have made it clear that we are committed to introducing a risk-based levy as soon as possible. I thought earlier that the hon. Gentleman said that people in the business world thought that they would be hard pressed to do so within two years, but the amendment urges that it should be done within those two years. He might want to clarify that at some stage.

Our approach gives the board the flexibility to roll out a risk-based component from the second year, without creating new burdens on trustees and employers by requiring them to conduct out-of-cycle valuations. My response will be very much in a burdens-on-business mode. The amendment would restrict the board's flexibility and could lead to new financial burdens for employers.

Setting up the pension protection fund as soon as we possibly can means that some of the information that the board needs to calculate the risk-based levy will not be available from the outset. The purpose of the transitional period is to allow the board to take a balanced approach to determine what information is available, what is feasible and what is necessary to implement the risk-based approach. It would not be wise or practical to restrict the transitional period from

the outset when it is clear that the information that the board may need to implement the risk-based levy is not fully available. The amendment that the hon. Gentleman has proposed could result in the board's being required to implement a simplified or inaccurate risk-related approach, based on incomplete or out-of-date data.

Moreover, the amendment could result in an additional financial burden being placed on employers, as the board would need pension schemes to obtain a PPF-style valuation outside the normal triennial cycle. The transitional period will allow the board to implement a dual system of levy calculation. We anticipate that those schemes that have completed their triennial evaluation—and which therefore have the appropriate information available—would be able to pay a levy based on risk. Those that have not done so will pay a levy based on scheme factors only. I repeat that those that want to bring forward the three-yearly review can do so if they think that that would benefit them in terms of the risk-based levy.

We have tried to have regard to normal cycles, in terms of valuations. That is why, although we appreciate that the hon. Gentleman was well intentioned in tabling the amendment, we cannot, sadly, accept it on this occasion.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I am overwhelmed that the Minister thinks that I have moved up the scale and am now well intentioned in my amendment. At least we are making some progress. I appreciate that the matter is difficult and I am grateful for the Minister's explanation, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 142 ordered to stand part of the Bill.