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Work and Pensions
Pension Protection System
The Minister of State, Department for Work and Pensions (Ms Rosie Winterton): As hon. Members are aware, the administrative resource costs of the Pensions Regulator (PR), the Pension Protection Fund (PPF), the Pensions Advisory Service (PAS) and the Pensions Ombudsman (PO) are funded by grant in aid which is then recovered through levies raised on pension schemes. The rates for these levies are set in regulations:
PPF Administration Levy—The administration costs of the PPF are initially met from the DWP administration vote. Section 117 of the Pensions Act 2004 provides that the Secretary of State may impose a levy on eligible pension schemes, for the purpose of meeting his expenditure in establishing the PPF and repaying grant in aid in respect of PPF administration costs. The levy is invoiced and collected by PR on behalf of the Secretary of State.
The General Levy—The administration costs of PR, PAS and the PO, are initially met from the DWP Administration Vote. Section 175 of the Pension Schemes Act 1993 (as amended in the Pensions Act 2004) allows for an annual general levy on occupational and personal pension schemes to recover this expenditure. The levy is also invoiced and collected by PR on behalf of the Secretary of State.
This year, the Government are pleased to announce that we will freeze the rates for both the general levy and PPF administration levy at their 2008-09 levels. These levels are sufficient to recover the grant in aid paid to each of the organisations.
This maintains the Government’s intention, outlined to the House last year, to provide levy cost stability for pension schemes. In holding rates stable, the Government seeks to avoid additional cost pressures on pension schemes at the current time. This is also in line with the consultation launched in September 2008 by the board of the PPF to hold the Pension Protection levy quantum stable (indexed in line with wage inflation).
The general levy rates since 2005 were set on the assumption that the PAS’s running costs were included in the amount to be raised by the levy, and since DWP took over funding responsibility from the regulatory authority it paid the PAS £8.5m grant in aid for the period 1 April 2005 to 30 June 2008. The Government’s intention is that this grant in aid should be met by pension schemes through the general levy, reflecting long-standing practice in relation to the PAS funding. The PAS provides good value dispute resolution and information provision services that are beneficial to both pension schemes and their members. It is therefore right that its costs should be met by pension schemes.
A consequential amendment to section 174 of the Pension Schemes Act 1993 should have been made to enable DWP to recover the grant in aid payments from 1 April 2005. Because the need for this amendment was overlooked, the levy-raising power in section 175 of the Pension Schemes Act 1993 does not apply to payments made to the PAS unless they are made by the pensions regulator.
To regularise the funding position so that there is a statutory basis for recovering grant in aid payments through the general levy, arrangements were made for the pensions regulator to pay grant in aid to the PAS from 1 July 2008.
Earlier consultations on amendments to the regulations setting the levy rates have stated that the general levy should cover the PAS’s funding. Taking this into account the Government has decided that it would be inappropriate to refund the £8.5m of grant in aid paid to the PAS for the period 1 April 2005 to 30 June 2008 and recovered through the general levy.
The Government considers that holding the general and PPF administrative levy rates at 2008-09 levels presents positive news for pension schemes. The stability it offers will be welcomed by levy payers, pension scheme trustees, members and sponsoring employers.
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