Pensions Bill

House of Commons

Session 2003 - 04
Internet Publications
Other Bills before Parliament

Pensions Bill

Pensions Bill
Part 2 — The Board of the Pension Protection Fund
Chapter 3 — Pension protection
82

Relationship with fraud compensation regime
134
Relationship with fraud compensation regime
(1)
No transfer notice may be given within the first 12 months of the assessment
period.
(2)
Where an application has been made under section 144 (application for fraud
5
compensation payment), no transfer notice may be given until—
(a)
the Board has determined the application,
(b)
the period within which the Board’s determination may be reviewed
by virtue of Chapter 6 has expired, and
(c)
if the determination is so reviewed—
10
(i)
the review and any reconsideration,
(ii)
any reference to the PPF Ombudsman in respect of the
determination, and
(iii)
any appeal against his determination or directions,

has been finally disposed of.
15
(3)
Subsection (4) applies where during an assessment period in respect of a
scheme the Board determines to make one or more fraud compensation
payments (“the fraud compensation”) to the trustees or managers of the
scheme under Chapter 4 of this Part.
(4)
For the purposes of determining whether the condition in section 99(2)(a),
20
100(2)(a) or section 121(2) is satisfied, any fraud compensation payment which
becomes payable after the relevant time is, to the extent that it relates to a loss
incurred by the scheme before that time, to be regarded as an asset of the
scheme at that time.
(5)
For the purposes of subsection (4) “relevant time”—
25
(a)
in the case of section 99(2)(a), has the same meaning as in that
provision,
(b)
in the case of section 100(2)(a), has the same meaning as in that
provision, and
(c)
in the case of section 121(2) means the reconsideration date (within the
30
meaning of section 120).
(6)
Subsection (4) does not apply to the extent that the fraud compensation is
payable in respect of a reduction in the value of money purchase assets of the
scheme.
For this purpose “money purchase assets” means assets representing the value
35
of any rights in respect of money purchase benefits under the scheme.
The fund
135
Pension Protection Fund
(1)
The Pension Protection Fund shall consist of—
(a)
property and rights transferred to the Board under section 123(2)(a),
40
(b)
contributions levied under section 136 or 137 (initial and pension
protection levies),
(c)
money borrowed by the Board under section 89 for the purposes of this
Chapter,

Pensions Bill
Part 2 — The Board of the Pension Protection Fund
Chapter 3 — Pension protection
83

(d)
income credited under subsection (2),
(e)
any amount paid to the Board by virtue of section 111 (repayment of
loans to trustees or managers and payment of interest),
(f)
amounts recovered under section 125(3)(a) (overpayments during the
assessment period),
5
(g)
amounts transferred from the Fraud Compensation Fund under section
149 (fraud compensation transfer payments), and
(h)
amounts of a prescribed description (other than amounts paid, directly
or indirectly, to the Board by the Crown).
(2)
The Board must credit to the Pension Protection Fund any income or capital
10
gain arising from the assets in the Fund.
(3)
The following are payable out of the Pension Protection Fund—
(a)
any sums required to meet liabilities transferred to the Board under
section 123(2)(a),
(b)
any sums required to make payments in accordance with the
15
provisions of sections 123(2)(c) and 124, Schedule 7 and any regulations
under section 130 (payment of benefits in accordance with the pension
compensation provisions),
(c)
any sums required for the repayment of, and the payment of interest
on, money within subsection (1)(c),
20
(d)
any sums required to make loans under section 111 (loans to trustees or
managers),
(e)
any sums required to make payments under section 125(3)(b)
(underpayments during the assessment period),
(f)
any sums required to make payments under section 128 (payment of
25
unpaid scheme benefits),
(g)
any sums required to discharge liabilities under section 131 or 132
(discharge of liabilities in respect of compensation or money purchase
benefits),
(h)
any sums required to meet expenditure incurred by virtue of section
30
123(5) and paragraph 7 of Schedule 6 (expenditure associated with
transfer of property, rights and liabilities to the Board),
(i)
sums required for prescribed purposes.
(4)
No other amounts are payable out of the Pension Protection Fund.
The levy
35
136
Initial levy
(1)
Regulations must make provision for imposing a levy (“the initial levy”) in respect of
eligible schemes for the period (“the initial period”) which—
(a)
begins with the day appointed for this purpose by the regulations, and
(b)
ends on the following 31st March or, if the regulations so provide, 12 months
40
after that date.
(2)
The regulations must prescribe—
(a)
the factors by reference to which the initial levy is to be assessed,
(b)
the rate of the levy, and
(c)
the time or times during the initial period when the levy, or any instalment of
45
the levy, becomes payable.

Pensions Bill
Part 2 — The Board of the Pension Protection Fund
Chapter 3 — Pension protection
84

(3)
Regulations under this section may only be made with the approval of the Treasury.
137
Pension protection levies
(1)
For each financial year falling after the initial period, the Board must impose one or
both of the following—
(a)
a risk-based pension protection levy in respect of eligible schemes;
5
(b)
a scheme-based pension protection levy in respect of eligible schemes.

In this Chapter “pension protection levy” means a levy imposed in accordance with
this section.
(2)
For the purposes of this section—
(a)
a risk-based pension protection levy is a levy assessed by reference to—
10
(i)
the difference between the value of a scheme’s assets (disregarding any
assets representing the value of any rights in respect of money
purchase benefits under the scheme) and the amount of its protected
liabilities, and
(ii)
if the Board considers it appropriate, one or more other risk factors
15
mentioned in subsection (3), and
(b)
a scheme-based pension protection levy is a levy assessed by reference to one or
more scheme factors mentioned in subsection (4).
(3)
The other risk factors referred to in subsection (2)(a)(ii) are factors which the Board
considers indicate one or more of the following—
20
(a)
the likelihood of an insolvency event occurring in relation to the employer in
relation to a scheme;
(b)
the risks associated with the nature of the scheme’s investments when
compared with the nature of its liabilities;
(c)
such other matters as may be prescribed.
25
(4)
The scheme factors referred to in subsection (2)(b) are—
(a)
the number of persons who are members, or fall within any description of
member, of a scheme;
(b)
the total annual amount of pensionable earnings of active members of a scheme;
(c)
the amount of a scheme’s liabilities to or in respect of members (other than
30
liabilities in respect of money purchase benefits);
(d)
such other factors as may be prescribed.
(5)
The Board must, before the beginning of each financial year, determine in respect of that
year—
(a)
whether to impose both or only one of the levies mentioned in subsection (1),
35
(b)
the factors by reference to which the pension protection levy or levies are to be
assessed,
(c)
the time or times by reference to which those factors are to be assessed,
(d)
the rate of the levy or levies, and
(e)
the time or times during the year when the levy or levies, or any instalment of
40
levy, becomes payable.
(6)
Different risk factors, scheme factors or rates may be determined in respect of different
descriptions of scheme.
(7)
The rate determined in respect of a description of scheme may be nil.
(8)
In this section—
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Pensions Bill
Part 2 — The Board of the Pension Protection Fund
Chapter 3 — Pension protection
85


“initial period” is to be construed in accordance with section 136;

“pensionable earnings”, in relation to an active member under a scheme, means
the earnings by reference to which a member’s entitlement to benefits is
calculated under the scheme rules (within the meaning of paragraph 33(3) of
Schedule 7).
5
(9)
In this section and sections 138 to 143 “financial year” means a period of 12 months
ending with 31st March.
(10)
The Board’s duty to impose a pension protection levy or levies in respect of any
financial year is subject to—
(a)
section 139 (amounts to be raised by the pension protection levies), and
10
(b)
section 142 (transitional provision).
138
Supplementary provisions about pension protection levies
(1)
The Board must consult such persons as it considers appropriate in the
prescribed manner before making a determination under section 137(5) in
respect of a financial year if—
15
(a)
that year is the first financial year for which the Board is required to
impose a levy or levies under section 137,
(b)
any of the proposed levy factors or levy rates is different, or applies to
a different description of scheme, from the levy factors and levy rates
in respect of the pension protection levy or levies imposed in the
20
previous financial year, or
(c)
no consultation has been required under this subsection in relation to
any pension protection levy imposed for either of the previous two
financial years.
(2)
The Board must publish details of any determination under section 137(5) in
25
the prescribed manner.
139
Amounts to be raised by the pension protection levies
(1)
Before determining the pension protection levy or levies to be imposed for a
financial year, the Board must estimate the amount which will be raised by the
levy or levies it proposes to impose.
30
(2)
The Board must impose a levy or levies for a financial year in a form which it
estimates will raise an amount not exceeding the levy ceiling for the financial
year.
(3)
The Board may impose both a risk-based pension protection levy and a
scheme-based pension protection levy for a financial year only if the levies are
35
in a form which the Board estimates will result in at least 50% of the amount
raised by the levies for that year being raised by the risk-based pension
protection levy.
(4)
The Board may impose only a scheme-based pension protection levy for a
financial year only if the amount which the Board estimates will be raised by
40
the levy is less than 10% of the levy ceiling for that year.
(5)
For the first financial year after the transitional period, regulations may modify
subsections (2) and (4) so as to provide that the reference to the levy ceiling for
the financial year is to be read as a reference to such lower amount as is
prescribed.
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Pensions Bill
Part 2 — The Board of the Pension Protection Fund
Chapter 3 — Pension protection
86

(6)
For the second financial year after the transitional period and for any
subsequent financial year, the Board must impose a pension protection levy or
pension protection levies in a form which it estimates will raise an amount
which does not exceed by more than 25% the amount estimated under
subsection (1) in respect of the pension protection levy or levies imposed for
5
the previous financial year.
(7)
The Secretary of State may by order—
(a)
substitute a different percentage for the percentage for the time being
specified in subsection (4);
(b)
substitute a different percentage for the percentage for the time being
10
specified in subsection (6).
(8)
Before making an order under subsection (7)(b), the Secretary of State must
consult such persons as he considers appropriate.
(9)
Regulations under subsection (5), or an order under subsection (7)(b), may be
made only with the approval of the Treasury.
15
(10)
In this section—
(a)
“risk-based pension protection levy” and “scheme-based pension
protection levy” are to be construed in accordance with section 137, and
(b)
“transitional period” has the meaning given by section 142(3)
140
The levy ceiling
20
(1)
The Secretary of State must, before the beginning of each financial year for
which a levy is or levies are required to be imposed under section 137, specify
by order the amount which is to be the levy ceiling for that year for the
purposes of section 139.
(2)
An order under subsection (1) in respect of the first financial year for which a
25
levy is or levies are imposed under section 137 may be made only with the
approval of the Treasury.
(3)
Subject to subsection (8), the amount specified under subsection (1) for a
financial year (“the current year”) after the first year for which a levy or levies
is imposed under section 137 must be—
30
(a)
where it appears to the Secretary of State that the level of earnings in the
review period has increased, the amount specified under subsection (1)
for the previous financial year increased by the earnings percentage for
that review period specified under subsection (6), and
(b)
in any other case, the amount specified under subsection (1) for the
35
previous financial year.
(4)
In subsection (3)—

“level of earnings” means the general level of earnings obtaining in Great
Britain; and

“review period” in relation to the current year means the period of 12
40
months ending with the prescribed date in the previous financial year.
(5)
For the purposes of subsection (3), the Secretary of State must, in respect of
each review period, review the general level of earnings obtaining in Great
Britain and any changes in that level; and for the purposes of such a review the
Secretary of State may estimate the general level of earnings in such manner as
45
he thinks appropriate.

Pensions Bill
Part 2 — The Board of the Pension Protection Fund
Chapter 3 — Pension protection
87

(6)
Where it appears to the Secretary of State that the general level of earnings has
increased during the review period, he must by order specify the percentage
by which that level has so increased (“the earning percentage”).
(7)
The Secretary of State must discharge the duties imposed by subsections (5)
and (6) in respect of a review period before the beginning of the prescribed
5
period which ends at the time the first financial year after the review period
begins.
(8)
The Secretary of State may, on the recommendation of the Board and with the
approval of the Treasury, make an order under subsection (1) in respect of a
financial year which specifies an amount exceeding the amount required to be
10
specified under subsection (3).
(9)
Before making a recommendation for the purposes of subsection (8), the Board
must consult such persons as it considers appropriate in the prescribed
manner.
141
Valuations to determine scheme underfunding
15
(1)
For the purposes of enabling risk-based pension protection levies (within the
meaning of section 137) to be calculated in respect of eligible schemes,
regulations may make provision requiring the trustees or managers of each
such scheme to provide the Board—
(a)
with an actuarial valuation of the scheme at such intervals as may be
20
prescribed, and
(b)
with such other information as the Board may require in respect of the
assets and protected liabilities of the scheme at such times as may be
prescribed.
(2)
For the purposes of this section, in relation to a scheme—
25
“an actuarial valuation” means a written valuation of the scheme’s assets
and protected liabilities prepared and signed by the actuary, and
“the actuary” means—
(a)
the actuary appointed under section 47(1)(b) of the Pensions Act
1995 (c. 26) (professional advisers) in relation to the scheme, or
30
(b)
if no such actuary has been appointed, a person with prescribed
qualifications.
(3)
Regulations under this section may prescribe how—
(a)
the assets and the protected liabilities of schemes, and
(b)
their amount or value,
35

are to be determined, calculated and verified.
(4)
Subject to any provision made under subsection (3), those matters are to be
determined, calculated and verified in accordance with guidance issued by the
Board.
(5)
In calculating the amount of any liabilities for the purposes of a valuation
40
required by virtue of this section, a provision of the scheme which limits the
amount of its liabilities by reference to the value of its assets is to be
disregarded.
(6)
In this section references to “assets” do not include assets representing the
value of any rights in respect of money purchase benefits under the scheme.
45