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The Chairman: Order. Interesting as the hon. Gentleman’s speech is, would he bring it back to the instruments before us today?
Mr. Waterson: Mr. Weir, I want to return to the issue of the levy and its adequacy. The PPF says that is has enough money to pay compensation for the next 25 years which, as Adrian Boulding of Legal and General pointed out, may not be very reassuring to
“a 40-year-old deferred member, who expects to draw nothing for the next 25 years but then a pension for...20 years beyond that.”
It is no wonder that the regulator, which has to protect the PPF as part of its legal duty, recently had to intervene to remind sponsoring companies that their legal obligation ahead of paying a dividend was to cover their pension fund deficits. It is interesting and significant that the regulator had to intervene to make that abundantly clear and therefore protect the longer-term viability of the PPF. The CBI takes the view that the PPF should behave
“counter-cyclically by sticking to...the three-year cap of the levy”.
As I have said, I think that that should go further, if anything. It went on to say that
“while this year’s rise...is, reasonable we wonder whether a better message might be sent by a freeze.”
I endorse that comment.
In summary, there are legitimate concerns about the medium-term viability of the PPF that need to be looked at now. We back industry calls to continue the cap on the PPF levy during the recession, otherwise there is a real danger of killing the golden goose by increasing demands on companies in these difficult times. Ministers need to give serious thought to standing behind the PPF, should it get into trouble. The 2004 architecture is coming under severe strain and must not be found wanting. However, I can assure the Minister that, subject to her not being gratuitously provocative on any other point, I have no intention of urging my hon. Friends to vote against either order.
2.55 pm
Paul Rowen (Rochdale) (LD): It is a pleasure to serve under your chairmanship, Mr. Weir, and I apologise for missing the start of the Minister’s opening remarks. I will be brief and focus my comments on the levy cap. The figure for the levy was set in November 2008 at £700 million, and the levy cap is £800 million-odd. It was estimated then that the PPF had assets of about £3 billion, but a shortfall of £500 million in liabilities.
Much has happened since November regarding both the depreciation of the stock market and the number of companies that have gone into liquidation. I would like to ask the Minister whether that has been taken into account. The pension schemes of companies that have gone into administration will go into an assessment period, which usually lasts two years, but what is the long-term effect on the PPF’s viability of the fall in the stock exchange and the number of companies going into liquidation, as that puts demands on the funds and reduces the levy?
The hon. Member for Eastbourne echoed a point made by my hon. Friend the Member for Twickenham (Dr. Cable), who said:
“I get a very strong sense that this is the Titanic hitting the iceberg. It is potentially very vulnerable in a serious recession, which is where we are getting into. Companies won’t be able to sustain the fund in its present form. The Government has to be explicit about what is standing behind it.”
Given that there are already 295 schemes with 134,000 members, but only 8,215 members receiving a pension, the fact that 21,653 members are due to receive one represents a considerable increase in the number of member who will be eligible for compensation. That does not include the likes of Woolworths, Nortel or Lehman Brothers. I appreciate that this might be something that we have to look at further, but what assessment has the Minister made?
The PPF was set up for good reasons, and it has done a good job, but I am sure that the Minister appreciates that, given the stormy waters we are entering, there are real concerns about whether it is sustainable in its present role and that one of the three options that the hon. Member for Eastbourne suggested might have to be considered.
2.59 pm
Peter Bottomley: The answer to the introduction by my hon. Friend the Member for Eastbourne of the stochastic method is really the Donald Rumsfeld contribution to mathematics: it is mixing the known and the unknown so that if one does a calculation twice one will not expect to get the same answer. My hon. Friend and the hon. Member for Rochdale have rightly raised the question of how the Government will judge whether they need to come back and look at the basis of the scheme, and whether something needs to be put behind it, but that is not the issue before us this afternoon.
With regard to increases in line with earnings, perhaps the Minister will be able to explain, either now or in a letter to members of the Committee, whether it is a matter of chance or a stochastic outcome that one measure runs from April to April, and one from July to July. It would seem to most people that that is an irrational bit of variety, unless it allows the mathematicians to do one calculation one month, then wait for a quarter to do another.
3 pm
Ms Winterton: I thank the hon. Members for Eastbourne, for Rochdale, and for Worthing, West for their contributions.
I will move on to the general points about the sustainability of the PPF. As both Opposition spokesmen said, the PPF was designed to cope in an economic downturn as well as in good times. In designing the PPF, the US model was looked at to ensure that the fund was sustainable. There are currently assets of approximately £3 billion. The levy for 2008-09 was £275 million and the compensation bill is about £4 million a month. There is no question of the fund being in any danger. It is perfectly liquidified, if that is a word. It is also correct that there have been calls for the Government to act as guarantor.
We recently looked at the fund to ensure that it is sustainable in the current economic climate. We looked at our calculations under the most difficult economic scenarios and considered conditions far worse than those we face today. We concluded that the Pension Protection Fund could continue to pay compensation for at least 20 years. However, it is right that we remain vigilant. Both we and the Pension Protection Fund will continue to monitor the position very carefully.
Mr. Waterson: Two points arise from that. First, is the Minister prepared to put those calculations in the Library or to give copies to the Committee, or both, so that we can see what has been produced? Secondly, does she not accept that although the PPF is confident that it can carry on paying for 20 or 25 years, this is a much more long-term prospect? As Mr. Boulding said in his piece, that level of confidence is not entirely reassuring, because the fund is expected to pay out in 50 year’s time as well.
Ms Winterton: That is exactly why the PPF was designed as it was. It must be able to withstand difficult economic times. We must remember that this scheme did not exist in the previous recession. It gives comfort to about 12 million people, who are protected by it. The problem with talking about the Government as the ultimate guarantor is that it would distinguish the people in this scheme from people in other schemes who do not have the same guarantor. That is absolutely not something that the Government would need to do, certainly at the moment.
Having looked at all the calculations, we are confident that in terms of liquidity, the fund is in a good position for at least the next 20 years. However, I reassure the hon. Gentleman that we will remain vigilant, and we will look at what we can place in the Library in relation to the calculations that have been undertaken. I will obviously need to check that there is nothing that is commercially confidential. I am sure he will understand that, but I will certainly look at what we can put in the Library.
This has been an interesting, useful discussion. It is quite right to ask the questions because some 12 million people rely on this fund for protection. We want to make sure that it can continue to provide that reassurance. It is also an important part of ensuring that people have confidence in pension saving. People want to see a robust system in place to help them if their employer fails. No doubt at the moment there is even more focus on that issue. Through the pension protection fund, we have vital compensation to support people who would otherwise lose out if their employer became insolvent and there were insufficient funds in the pension scheme.
I believe that together the measures that we have put in place and the issues that we have debated today will ensure that people can have confidence in saving for their future. I commend these statutory instruments to the Committee.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Occupational Pension Schemes (Levy Ceiling) Order 2009.

Draft pension protection fund (pension compensation cap) order 2009

Resolved,
That the Committee has considered the draft Pension Protection Fund (Pension Compensation Cap) Order 2009.—(Ms Rosie Winterton.)
3.7 pm
Committee rose.
 
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