Pensions Bill

House of Commons

Session 2003 - 04
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Pensions Bill

Pensions Bill
Part 2 — The Board of the Pension Protection Fund
Chapter 3 — Pension protection
105

The levy
157
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
5
(b)
ends on the following 31st March or, if the regulations so provide, 12
months 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
10
(c)
the time or times during the initial period when the levy, or any
instalment of the levy, becomes payable.
(3)
Regulations under this section may only be made with the approval of the
Treasury.
158
Pension protection levies
15
(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;
(b)
a scheme-based pension protection levy in respect of eligible schemes.

In this Chapter “pension protection levy” means a levy imposed in accordance
20
with this section.
(2)
For the purposes of this section—
(a)
a risk-based pension protection levy is a levy assessed by reference to—
(i)
the difference between the value of a scheme’s assets
(disregarding any assets representing the value of any rights in
25
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 mentioned in subsection (3), and
(b)
a scheme-based pension protection levy is a levy assessed by reference
30
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—
(a)
the likelihood of an insolvency event occurring in relation to the
employer in relation to a scheme;
35
(b)
the risks associated with the nature of a scheme’s investments when
compared with the nature of its liabilities;
(c)
such other matters as may be prescribed.
(4)
The scheme factors referred to in subsection (2)(b) are—
(a)
the number of persons who are members, or fall within any description
40
of member, of a scheme;
(b)
the total annual amount of pensionable earnings of active members of
a scheme;

Pensions Bill
Part 2 — The Board of the Pension Protection Fund
Chapter 3 — Pension protection
106

(c)
the amount of a scheme’s liabilities to or in respect of members (other
than 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—
5
(a)
whether to impose both or only one of the levies mentioned in
subsection (1),
(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,
10
(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 levy, becomes payable.
(6)
Different risk factors, scheme factors or rates may be determined in respect of
different descriptions of scheme.
15
(7)
The rate determined in respect of a description of scheme may be nil.
(8)
In this section—

“initial period” is to be construed in accordance with section 157;

“pensionable earnings”, in relation to an active member under a scheme,
means the earnings by reference to which a member’s entitlement to
20
benefits would be calculated under the scheme rules (within the
meaning of paragraph 31(2) of Schedule 7) if he ceased to be an active
member at the time by reference to which the factor within subsection
(4)(b) is to be assessed.
(9)
In this section and sections 159 to 164 “financial year” means a period of 12
25
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 160 (amounts to be raised by the pension protection levies), and
(b)
section 163 (transitional provision).
30
159
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 158(5) in
respect of a financial year if—
(a)
that year is the first financial year for which the Board is required to
35
impose a levy or levies under section 158,
(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
previous financial year, or
40
(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 158(5) in
the prescribed manner.
45

Pensions Bill
Part 2 — The Board of the Pension Protection Fund
Chapter 3 — Pension protection
107

160
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.
(2)
The Board must impose a levy or levies for a financial year in a form which it
5
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
in a form which the Board estimates will result in at least 50% of the amount
10
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
the levy is less than 10% of the levy ceiling for that year.
15
(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.
(6)
For the second financial year after the transitional period and for any
20
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
the previous financial year.
25
(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
specified in subsection (6).
30
(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.
(10)
In this section—
35
(a)
“risk-based pension protection levy” and “scheme-based pension
protection levy” are to be construed in accordance with section 158, and
(b)
“transitional period” has the meaning given by section 163(3).
161
The levy ceiling
(1)
The Secretary of State must, before the beginning of each financial year for
40
which a levy is or levies are required to be imposed under section 158, specify
by order the amount which is to be the levy ceiling for that year for the
purposes of section 160.

Pensions Bill
Part 2 — The Board of the Pension Protection Fund
Chapter 3 — Pension protection
108

(2)
An order under subsection (1) in respect of the first financial year for which a
levy is or levies are imposed under section 158 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 is or levies
5
are imposed under section 158 must be—
(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
10
(b)
in any other case, the amount specified under subsection (1) for the
previous financial year.
(4)
In subsection (3)—

“level of earnings” means the general level of earnings obtaining in Great
Britain; and
15

“review period” in relation to the current year means the period of 12
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
20
Secretary of State may estimate the general level of earnings in such manner as
he thinks appropriate.
(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 earnings percentage”).
25
(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
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
30
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
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
35
manner.
162
Valuations to determine scheme underfunding
(1)
For the purposes of enabling risk-based pension protection levies (within the
meaning of section 158) to be calculated in respect of eligible schemes,
regulations may make provision requiring the trustees or managers of each
40
such scheme to provide the Board—
(a)
with an actuarial valuation of the scheme at such intervals as may be
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
45
prescribed.
(2)
For the purposes of this section, in relation to a scheme—

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Part 2 — The Board of the Pension Protection Fund
Chapter 3 — Pension protection
109

“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
5
(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,
10

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
15
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.
20
163
Pension protection levies during the transitional period
(1)
Regulations may provide that in respect of any financial year during the
transitional period—
(a)
sections 158 and 160(3) and (4) are to apply with such modifications as
may be prescribed;
25
(b)
section 160(2) is to apply as if the reference to the levy ceiling for the
financial year were a reference to such lower amount as is specified in
the regulations.
(2)
Regulations which contain provision made by virtue of subsection (1)(b) may
only be made with the approval of the Treasury.
30
(3)
For the purposes of this section “the transitional period” means the prescribed
period beginning immediately after the initial period (within the meaning of
section 157).
164
Calculation, collection and recovery of levies
(1)
This section applies in relation to—
35
(a)
the initial levy imposed under section 157 in respect of a scheme, and
(b)
any pension protection levy imposed under section 158 in respect of a
scheme.
(2)
The levy is payable to the Board by or on behalf of—
(a)
the trustees or managers of the scheme, or
40
(b)
any other prescribed person.
(3)
The Board must in respect of the levy—
(a)
determine the schemes in respect of which it is imposed,

Pensions Bill
Part 2 — The Board of the Pension Protection Fund
Chapter 4 — Fraud compensation
110

(b)
calculate the amount of the levy in respect of each of those schemes,
(c)
notify any person liable to pay the levy in respect of the scheme of the
amount of the levy in respect of the scheme and the date or dates on
which it becomes payable.
(4)
The Board may require the Regulator to discharge, on the Board’s behalf, its
5
functions under subsection (3) in respect of the levy.
(5)
Where a scheme is an eligible scheme for only part of a financial year, except in
prescribed circumstances, the amount of the levy payable in respect of the
scheme for that year is such proportion of the full amount as that part bears to
the year.
10
(6)
An amount payable by a person on account of the levy is a debt due from him
to the Board.
(7)
An amount so payable may be recovered—
(a)
by the Board, or
(b)
if the Board so determines, by the Regulator on its behalf.
15
(8)
Regulations may make provision relating to—
(a)
the collection and recovery of amounts payable by way of any levy in
relation to which this section applies;
(b)
the circumstances in which any such amount may be waived.
Chapter 4
20
Fraud compensation
Entitlement to fraud compensation
165
Cases where fraud compensation payments can be made
(1)
The Board shall, in accordance with this section, make one or more payments
(in this Part referred to as “fraud compensation payments”) in respect of an
25
occupational pension scheme if—
(a)
the scheme is not of a prescribed description,
(b)
the value of the assets of the scheme has been reduced since the relevant
date and the Board considers that there are reasonable grounds for
believing that the reduction was attributable to an act or omission
30
constituting a prescribed offence,
(c)
subsection (2), (3) or (4) applies,
(d)
an application is made which meets the requirements of subsection (5),
and
(e)
the application is made within the authorised period.
35
(2)
This subsection applies where—
(a)
a qualifying insolvency event has occurred in relation to the employer
in relation to the scheme,
(b)
after that event, an insolvency practitioner in relation to the employer
has issued a notice under section 111(2) confirming that a scheme
40
rescue is not possible in relation to the scheme, and

Pensions Bill
Part 2 — The Board of the Pension Protection Fund
Chapter 4 — Fraud compensation
111

(c)
in the period which began with the occurrence of the insolvency event
and ended immediately before that notice was issued, no cessation
event occurred.
(3)
This subsection applies where—
(a)
in relation to the scheme, an application has been made under
5
subsection (1), or a notification has been given under subsection (5)(a),
of section 116, and
(b)
in response to that application, or the notice given by the Regulator
under subsection (4) of that section, the Board has issued a notice under
section 117(2) confirming that a scheme rescue is not possible in
10
relation to the scheme.
(4)
This subsection applies where—
(a)
the scheme is not an eligible scheme,
(b)
the employer in relation to the scheme is unlikely to continue as a going
concern,
15
(c)
the prescribed requirements are met in relation to the employer,
(d)
the application under this section states that the case is one in relation
to which paragraphs (b) and (c) apply, and
(e)
in response to that application the Board has issued a notice under
section 166(2) confirming that a scheme rescue is not possible in
20
relation to the scheme.
(5)
An application meets the requirements of this subsection if—
(a)
it is made by a prescribed person,
(b)
it is made in the prescribed manner and contains the prescribed
information.
25
(6)
Subject to subsection (7), an application is made within the authorised period
if it is made within the period of 12 months beginning with the later of—
(a)
the time of the relevant event, or
(b)
the time when the auditor or actuary of the scheme, or the trustees or
managers, knew or ought reasonably to have known that a reduction of
30
value falling within subsection (1)(b) had occurred,

or within such longer period as the Board may determine in any case.
(7)
No application for fraud compensation may be made under this section in
respect of a scheme once a transfer notice is given in relation to the scheme
under section 143.
35
(8)
For the purposes of this section a cessation event occurs in relation to a scheme
when—
(a)
an insolvency practitioner in relation to the employer issues a notice
under section 111(2), or the Board issues a notice under section 117(3)
or 166(2), confirming that a scheme rescue has occurred in relation to
40
the scheme,
(b)
the Board ceases to be involved with the scheme by virtue of an event
within section 132(2)(c)(i) or (ii), or
(c)
a person who is or was an insolvency practitioner in relation to the
employer issues a notice under section 111(4), in a case where section
45
132(4) does not apply.
(9)
For the purposes of this section, an insolvency event (“the current event”) in
relation to the employer is a qualifying insolvency event if—