Clause 98

Pensions Bill – in a Public Bill Committee at 11:30 am on 19th February 2008.

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Interest on late payment of levies

Question put, That the clause stand part of the Bill.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions 11:45 am, 19th February 2008

The purpose of clause 98 and accompanying schedule 7 is to allow for interest to be charged on late payment and levies to the PPF. That proposition is so obvious and reasonable that one wonders  why it was not included in the original legislation. No doubt the Minister will explain that apparent oversight.

The explanatory notes, to which I like to refer from time to time, just to ensure that the person who drafted them was not completely wasting their time, says:

“There may be circumstances in which it would be inappropriate to charge interest on late payment of levies”,

and that there would be

“power to prescribe such circumstances in regulations”.

I will not waste my breath by asking whether the draft regulations are available, but it would be helpful if the Minister said what circumstances would constitute a good reason or an excuse for not paying on time. After all, a payment not made on time is costing money to all the people who pay the levies on time.

It is clear that the Pensions Act 2004 does not contain a power for the board of the PPF to make a charge of interest. The impact assessment makes the obvious point, which is that if these monies—these interest payments—were available, they could be used for investment and, presumably, to defray the overall costs of the levy to British industry. The research paper says:

“we would expect the fact that interest would be charged on late payments would reduce the incidence of late payment”— although I suspect that that would depend on the interest rate and how it compared with how much the company had to pay for its own borrowings—

“as schemes would aim to pay Levy bills more promptly to avoid paying interest.”

It is calculated, on a particular rate of interest, that that would have brought in about £600,000, which is, as the saying goes, better than a poke in the eye with a sharp stick.

This matter is certainly worth pursuing. I will be interested to hear the Minister's explanation, or apology, for not putting such a provision in the previous legislation, although I appreciate that he was not the Minister responsible at the time, and I should like to know in what circumstances it would be inappropriate to charge interest in particular cases.

Photo of Danny Alexander Danny Alexander Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey

Further to those comments, again, I agree with the hon. Gentleman that it is sensible to have provisions allowing interest on late payment of levies relating to the PPF. Such provision should probably have been included in the 2004 Act, deliberations on which the hon. Member for Eastbourne was also involved in, as he said in response to an earlier point. Of course, for the sake of completeness, I am sure that Liberal Democrats were also involved in that legislation, too, so we cannot be wholly blameless in this regard either. None the less, the Government have the resources, as has been said before.

I should like the Minister to clarify whether this provision has been advanced to rectify an omission, whether there have been cases where levies have been paid late and whether there is a particular problem with late payment which the Pension Protection Fund has drawn to his attention. It will be interesting to know what information the Minister has, if any, about the extent of the problem of late payment, how late payments  are being made and whether that is causing a problem for the PPF carrying out its business. In other words, having introduced these powers, does he expect that the PPF will need to use them regularly? What is the proportion of companies making late payment of levies to the PPF? Does the provision answer a significant practical problem that is currently being experienced or does the Minister regard it more as an insurance policy to ensure that it does not happen in future?

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

First, I am assured that some of the levies were set in the Pension Schemes Act 1993. The 2004 Act merely created the PPF, but some of the levies were set out in the 1993 Act, for which another Government may wish to claim responsibility.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

I am sure that the Minister is desperately trying to shift the blame, but if the levies were being levied from 1993 onwards, what were they for if there was no PPF until 2004?

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

When we came into office, we felt that protection under the Pension Schemes Act 1993 was not adequate. Given that there was broad support for the PPF, I presume that the hon. Gentleman’s party also felt that the provisions that it had put in place were inadequate. However, when it put them in place, it did not have in that Act, which provides that interest may be charged on late payment and makes sure that there is coverage for the Office of the Pensions Advisory Service and the pensions ombudsman, a provision for the levy to have interest if it is paid late. Perhaps the better argument would be that we should have spotted in 2004 the mistake made by the previous Conservative Government. As the hon. Member for Inverness, Nairn, Badenoch and Strathspey said, the hon. Member for Eastbourne was a member of the Committee considering the Bill at that time, while I was not, so perhaps he should have spotted the mistake that his Government had made in 1993. However, perhaps we can all share the blame.

Let me be clear. I mentioned that the levy covers the Office of the Pensions Advisory Service and the pensions ombudsman. The total general levy from occupational and personal pension schemes for 2008-09, for example, is expected to collect £42 million, but that will be divided. It will not all go to the PPF. About £7 million is earmarked to recoup one third of the deficit that has built up over the past three years. I shall return to that issue in a moment. The bulk—84 per cent.—of the ongoing £35.6 million is to pay for the Pensions Regulator, with the balance being split roughly between the Office of the Pensions Advisory Service and the pensions ombudsman. The general levy has not increased since 2005, when the Pensions Regulator replaced the Occupational Pensions Regulatory Authority, because of a ministerial commitment that we would not increase it.

In answer to the hon. Member for Inverness, Nairn, Badenoch and Strathspey, we need the power to tackle the late payment levies and 40 per cent. of the pension protection levy collected for 2006-07 was paid after 28 days, which accounted for about £114 million of the £271 million collected. We had quite a bit of late payment. The hon. Member for Eastbourne rightly asked whether there are circumstances in which it is  justifiable to pay late. One of the reasons why we have had a lot of late payment in recent years is that there has been a dispute about the amount of levy. A number of the funds involved have said that the level of risk, for example, that is included in the calculation of the levy is wrong and that they are not as risky as all that. The funds have had it looked at again and, in many cases, it has been agreed that the levy can be reduced.

It seems that there was some justifiable reason for a late payment and, in such circumstances, it would be open not to charge interest on the late payments because that was justified; the original levy that was imposed was not right. There are circumstances in which it may be right not to charge interest. Obviously, there are circumstances in which there is no dispute about the level of the levy and payments just arrive late when it would be appropriate to charge interest. I hope that I have answered the various issues that have been raised.

Question put and agreed to.

Clause 98 ordered to stand part of the Bill.

Schedule 7 agreed to.