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Clause 134 - Relationship with fraud compensation regime
278. Subsection (1) clarifies that no notice transferring responsibility for the scheme to the Board can be given within the first 12 months of the assessment period, in order to give time for consideration to any application for fraud compensation. Subsection (2) states that where there has been an application for a fraud compensation payment under clause 144, no transfer notice can be given until the Board has decided the application, the period within which the Board's decision can be reviewed has expired and any appeals against the decision has come to an end.
279. If, during the assessment period the Board decides to make a fraud compensation payment, then when the Board is considering whether the value of the assets are less than the protected liabilities or certain other liabilities/ costs of the scheme, fraud compensation payments that relate to a loss before the scheme applies to be taken over by the Pension Protection Fund will count towards the assets of that scheme. This does not apply where the compensation payable relates to a reduction in value of money-purchase scheme assets.
Clause 135 - The Pension Protection Fund
280. The Pension Protection Fund will comprise of:
281. Payments from the Pension Protection Fund may only be from the following list:
Clause 136 - Initial Levy
282. Regulations may provide for the imposition of an initial levy on eligible schemes for a prescribed initial period. They may state the factors upon which the initial levy will be assessed, the rate of the levy and the time or times during the initial period when the levy, or any instalment of the levy, becomes payable. They may be made in relation to the initial levy with the consent of the Treasury.
Clause 137 - Pension protection levies
283. Subsection (1) of this clause allows for the Board to impose levies in respect of eligible schemes for each financial year falling after the initial period as defined in clause 136. The Board must impose one or both of the levies as detailed at subsections (1)(a) and (1)(b). Subsection (2) allows for the imposition of two levies. The first may be assessed using the difference between a scheme's assets and liabilities and other risk factors if the Board deems this to be appropriate. A second may be assessed by reference to one or more scheme factors as detailed in subsection (4).
284. In relation to the risk factors mentioned in subsection (2)(a)(ii), subsection (3) sets out those factors. Subsection (4) describes the scheme factors to be used in assessing the levy as at subsection (2)(b), and allows for other factors to be detailed in regulations. Subsection (5) states that the Board, before the beginning of each financial year for which pension protection levies are to be imposed, must determine the factors by reference to which each of the levies is set, the time or times by which those factors are to be assessed, the rate of those levies, and the time or times during the year when each levy or any instalment of levy becomes payable.
285. Subsection (6) allows for the Board to apply different risk factors, scheme factors or rates for different descriptions of scheme where the Board deems this appropriate. Subsection (7) states that the rate determined in relation to a particular description of a scheme may be set at nil.
286. Subsection (8) provides an explanation of the terms "initial period" and "pensionable earnings".
287. Subsection (9) provides the meaning of the term "financial year" as contained within clauses 138 to 143. Subsection (10) states that the Board's duty to impose pension protection levies in respect of any financial year is subject to clause 139 (amounts to be raised by the pension protection levies) and clause 142 (pension protection levies during the transitional period).
Clause 138 - Supplementary provisions about pension protection levies
288. This clause sets out the requirement for the Board to consult such persons as it considers appropriate in the manner specified before determining the levy factors contained under clause 137(5) where it is the first financial year for which pension protection levies are imposed; where there is a change in the proposed levy rate or factors from the previous year; or when no consultation has been required under this section in relation to any of the pension protection levies imposed for the previous two financial years. Subsection (2) requires the Board to publish details of any determination in relation to clause 137(5) in the manner set out in regulations.
Clause 139 - Amounts to be raised by the pension protection levies
289. This clause sets out the amounts to be raised by the pension protection levies. Subsection (1) states that the Board must estimate the amount which will be raised by the levies it proposes to impose. Subsection (2) states that the Board must not impose levies for a financial year in a form which it estimates will raise an amount exceeding the levy ceiling (as outlined in clause 140) for the financial year. Subsection (3) states that the Board must set pension protection levies that it estimates will result in at least 50% of those levies being raised by reference to clause 137(2)(a) risk factors. Subsection (4) states that the Board can only impose a levy based on scheme factors if the Board estimates that the amount to be raised by the levy is less than 10% of the levy ceiling for that year. Regulations will enable the Board to modify the 10% level. Subsection (5) allows for regulations to modify the levy ceiling as at subsection (2) for the first financial year after the transitional period. This is to take into account the fact that the levy imposed during the transitional period is likely to be less than a levy set in a "normal year" under clause 137.
290. Subsection (6) provides for an increase in the pension protection levies for the second financial year after the transitional period and other subsequent years that does not exceed 25% of the amount estimated under subsection (1). Subsection (7) sets out that the Secretary of State may, by way of regulations, substitute a different percentage for the percentage specified in subsection (6). Subsection (8) states that before making an order the Secretary of State must consult those persons he considers appropriate. Subsection (9) states that regulations relating to subsection (5) or an order under subsection (7) can only be made with the approval of the Treasury. Subsection (10) specifies the term "transitional period" which has the meaning given by clause 142, and "risk-based pension protection levy" and "scheme-based pension protection levy" as in accordance with clause 137.
Clause 140 - The levy ceiling
291. This clause sets out the requirement for the Secretary of State to specify before the beginning of the financial year, with the approval of the Treasury, the amount of the levy ceiling. The levy ceiling will be set by the Secretary of State in relation to the notional amount. The notional amount is the amount that would normally be collected by way of the pension protection levies in a "normal" year. This is the annual amount the Board needs to collect in order to fund its expected liabilities. Subsection (1) states that the Secretary of State should, by order, specify the amount of the levy ceiling before the beginning of each financial year that levies are set, for the purposes of determining the amount to be raised by the pension protection levies in line with clause 139. Subsection (2) sets out the fact that an order made under subsection (1) can only be made with the approval of Treasury. Subsection (3) allows for the Secretary of State to uprate the levy ceiling in line with earnings (subsection (3)(a)). Subsection (3)(b) states that where there has been no increase in the level of earnings the amount of the levy ceiling will be as specified in subsection (1) for the previous financial year.
292. Subsection (4) sets out the meaning of the "level of earnings" and the "review period". Subsection (5) provides for the Secretary of State to review the general level of earnings within Great Britain for each review period and that for the purposes of such a review the Secretary of State may estimate the general level of earnings he sees fit. Subsection (5) provides for the Secretary of State to specify in regulations the percentage increase in the general level of earnings.
293. Subsection (6) provides that the Secretary of State must determine the increase in the levy ceiling for the review period as set out in subsection (3) prior to the period as specified in regulations. This is to ensure that the Board is given sufficient time to determine the levy rate in order to impose that rate for the following financial year. Subsection (7) states that the Secretary of State must carry out the duties as detailed in subsections (5) and (6) for the relevant review period and before the beginning of the prescribed period as detailed in regulations. Subsection (8) allows for the Secretary of State, by order, and with the approval of the Treasury, to increase the levy ceiling, following a recommendation by the Board, to an amount that exceeds the amount specified in subsection (2). Subsection (9) sets out the requirement for the Board to consult those persons it considers appropriate in the manner specified by regulations before making a recommendation to exceed the levy ceiling relating to subsection (8).
Clause 141 - Valuations to determine scheme underfunding
294. This clause sets out the way in which valuations will determine scheme underfunding for the purposes of calculating the risk-based pension protection levy. Subsection (1) allows for regulations to require trustees or managers of each scheme to provide the Board with an actuarial valuation of the scheme or any other information the Board may require in respect of the assets and protected liabilities of the scheme at such intervals or times as may be determined by regulations. Subsection (2) sets out the meaning of "an actuarial valuation" and "the actuary". Subsection (3) allows for regulations to prescribe how the assets and protected liabilities of schemes and their amount or value are to be determined, calculated and verified. Subsection (4) states that subject to any provision made under subsection (3) those matters should be determined, calculated and verified with guidance issued by the Board. Subsection (5) sets out that where a scheme limits the amount of its liabilities by reference to the amount of its assets, those liabilities should be disregarded. Subsection (6) states that any reference to "assets" does not include those assets relating to the rights acquired in respect of money purchase benefits under the scheme.
Clause 142 - Pension protection levies during the transitional period
295. Subsection (1) of this clause allows for regulations to modify the details relating to the Pension Protection Levies for the "transitional period" as set out in clause 137 and subsection (3) of clause 139. Subsection (1)(b) also provides for the levy ceiling to be set at a lower amount during the transitional period as in clause 139(2) and (4).
296. Subsection (2) states that any regulations made in relation to the levy ceiling as at subsection (1)(b) may only be made with the approval of the Treasury.
297. Subsection (3) defines the transitional period as being the period as detailed in regulations beginning immediately after the initial period (defined in clause 136).
Clause 143 - Calculation, collection and recovery of levies
298. This clause applies to the initial levy, and the pension protection levies. These levies are payable to the Board by the trustees or managers of the scheme or any other prescribed person. Subsection (3) provides that the Board must determine the schemes which must pay any levy, calculate the amount of the levy paid, and notify any person of the amount of their liability. Subsection (4) allows the PPF to delegate the duties set out in subsection (3) to the Regulator. Subsection (5) sets out that schemes may pay a proportion of a yearly levy to reflect that proportion of the year during which the scheme is eligible. Subsection (6) and (7) provide for the levies to be a debt due to the Board, but which is recoverable by the Board, or if the Board determines, by the Regulator. Subsection (8) allows regulations to make provision for the collection and recovery of such debts, and the circumstances in which the debt may be waived.
Chapter 4 - Fraud Compensation
Entitlement to fraud compensation
Clause 144 - Cases where fraud compensation payments can be made
299. This clause sets out the criteria that must be satisfied before the Board can make a fraud compensation payment to an occupational pension scheme:
300. Subsections (2), (3) and (4) set out the different circumstances in which the employer is considered insolvent for the purposes of fraud compensation.
301. Subsection (2) applies where an insolvency event has occurred, and the insolvency practitioner has confirmed the event by issuing a notice under clause 96.
302. Subsection (3) applies where the employer is not subject to insolvency events, and where the Board has issued a notice under clause 102 confirming that a scheme rescue is not possible. In these circumstances, the scheme will have applied for pension compensation, or the Regulator will have notified the PPF under clause 101.
303. Subsection (4) applies to certain schemes that are not eligible for pension compensation, but are eligible for fraud compensation, such as defined contribution schemes. The Board must have confirmed that a scheme rescue is not possible, and that the employer is unlikely to continue as a going concern.
304. Subsection (7) states that applications for fraud compensation may not be made by the trustees after the Board has issued a transfer notice, thereby assuming responsibility for a scheme under clause 122.
305. Subsection (8) and (9) define the terms used in this clause.
306. Subsection (10) clarifies that compensation which is payable under this clause, cannot be paid until the settlement date has been determined.
Clause 145 - Schemes which are not eligible schemes or subject to insolvency events
307. This clause applies where the Board receives an application for fraud compensation from certain schemes which are not subject to insolvency events, such as specified defined contribution schemes. These schemes are not eligible for pension compensation.
308. Where the Board receives an application for fraud compensation for such a scheme, and it is able to confirm that a scheme rescue is not possible, or that a rescue has occurred, it must issue a notice to that effect. Under subsection (3), this notice must be copied to the Regulator, the trustees and applicant (if different), and the insolvency practitioner or employer.
309. Subsection (4) states that the Board must issue a withdrawal notice if it confirms that a scheme rescue has occurred (as in clause 102).
Clause 146 - Recovery of value
310. Trustees are required to attempt to recover the value of the loss due to fraud where the recovery can be made without undue cost or delay.
311. Subsection (2) states that fraud compensation cannot be made until the Board has set a "settlement date", after which further recoveries would be unlikely without undue cost or delay. The Board must consult the trustees before setting the date.
312. Subsections (3) and (4) clarify that "recovery of value" means any increase in the scheme's assets received by the trustees in relation to the fraud, other than payments by the Board. The Board may determine which payments fall within the definition of a recovery of value.
Clause 147 - Fraud compensation payments
313. This clause specifies the procedures to be followed by the Board when making a fraud compensation payment.
314. Subsection (2) permits the Board to set the terms and conditions of a payment, while subsection (3) states that total payment must not exceed the value of the loss less any recovery of funds. The amount of the payment must be in accordance with regulations and must take account of any interim payments (subsection (4)).
315. Subsections (5) and (6) require the Board to give written notice of the payment to be made to the trustees and applicant (if different), the Regulator, and the insolvency practitioner or employer.
Clause 148 - Interim payments
316. This clause allows the Board to make interim payments to a scheme in order to meet liabilities of a prescribed description. Interim payments may be made where an application for fraud compensation has been received, but a settlement date has not yet been specified. The Board must believe that the criteria for fraud compensation (set out in clause 144) have been met or are likely to be met.
317. Subsection (2) stipulates that interim payments must not exceed the amounts of fraud compensation payments. Under subsection (3), interim payments can be recovered by the Board if it decides the criteria in clause 144 have not been met or the amount was excessive.
318. Subsection (4) permits the Board to set the terms and conditions of fraud compensation payments, including any requirement for repayment. Any amounts recovered under this clause are to be credited to the fraud compensation fund (subsection (5)).
Clause 149 - Board's powers to make fraud compensation transfer payments
319. Where the Board assumes responsibility for a scheme, the Board may make fraud compensation transfer payments to the Pension Protection Fund. A loss due to fraud must have occurred, for which no application for fraud compensation was made before the transfer notice was received by the trustees.
320. Under subsections (3) and (4), the Board is required to attempt to recover the value of the loss due to fraud, where the recovery can be made without undue cost or delay. The transfer payment cannot be made until all reasonable attempts have been made to do so.
321. Subsection (5) - "recovery of value" means any increase in the value of the Pension Protection Fund as a result of payment received by the Board that is attributable to a previous offence that caused the reduction in value.
322. Subsection (6) - it is for the Board to decide whether a payment it receives falls within subsection (5), and payment includes any money or money's worth.
323. Subsection (7) - the amount of a transfer payment (or aggregate of payments) must not exceed the difference between the reduction in value and any subsequent recoveries.
324. Subsection (8) - subject to subsection (7) the Board's determination of a transfer payment will be governed by regulations.
Clause 150 - Fraud Compensation Fund
325. This clause identifies monies which are payable to the Fraud Compensation Fund, and lists the categories of expenditure that may be charged to it. Subsection (1) specifies the Fund's sources of income as:
326. Subsection (2) specifies the Fund's expenditure categories as:
327. Only those amounts specified in subsection (2) are chargeable to the Fraud Compensation Fund.
Clause 151 - Fraud compensation levy
328. This clause provides that the Board may impose a fraud compensation levy on eligible schemes. The levy is payable to the Board by or on behalf of the trustees or other prescribed person.
329. Subsection (4) states that a compensation levy must be paid at a time and rate determined by the Board, but must not exceed the prescribed rate. Subsection (5) permits the Board to take into account future and previous fraud compensation expenditure when calculating the rate of the levy.
330. Subsection (6) requires the Board to notify prescribed persons of the levy payable for the scheme in the prescribed manner. Subsections (7) and (8) detail that the amount of levy payable under this clause is a debt due to the Board, and is recoverable by the Board or by the Regulator on its behalf.
331. Further provision may be made through regulations for the Board to collect and recover the levy and the circumstances in which a levy may be waived.
Chapter 5 - Gathering Information
Clause 152 - Information to be provided to the Board
332. Regulations may require prescribed persons to provide information in prescribed circumstances, in particular to enable a determination of entitlement of compensation.
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