Defined BenefitJan 2 2019

Government rules out pension lifeboat levy plan

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Government rules out pension lifeboat levy plan

The government has denied independent Labour MP Frank Field's request to amend legislation so small and medium enterprises (SMEs) could pay their pension funds levy in instalments to the Pension Protection Fund (PPF).

In a letter to Guy Opperman, minister for pensions and financial inclusion, the chairman of the Work & Pensions select committee said he has heard concerns the pensions lifeboat interest charged on late payment of levies – currently set at 5 per cent plus the Bank of England base rate – is too high and is "placing an unduly heavy burden on small businesses, who may already be struggling to pay the PPF levy."

By way of comparison, the interest rate levied by HM Revenue & Customs for late payment of taxes is 3.25 per cent, Mr Field said.

The current legislation also provides that a payment is late after 28 days, which "creates an obvious cash flow problem, especially for small businesses, which are asked to find a substantial sum in just four weeks," he noted.

Mr Field argued that payment by instalment would alleviate these cash flow problems, but pointed out the PPF doesn't have the option of limiting these only to SMEs, under the current law.

The pensions lifeboat levy is payable by all UK defined benefit (DB) pension schemes, whose members would be eligible for PPF compensation if the scheme employer became insolvent and they did not have enough assets to pay benefits at PPF levels of compensation.

Last month, the fund published its final levy rules for 2019 to 2020, confirming the levy would be set at £500m, 9 per cent less than the previous year.

In his response, Mr Opperman said he is aware of the concerns raised by Mr Field, but added he isn't "yet convinced there is a clear case for change".

He argued the current interest rate level has succeeded in fulfilling its purpose, since the time taken by schemes to pay the levy has decreased from 34 to 24 days.

He also argued that interest has only been applied in rare cases – around 175 per year, representing just over 3 per cent of schemes.

Regarding changing legislation to allow instalment payments, Mr Opperman said that there isn't sufficient evidence to support the case for this change.

He argued that there has been "limited calls" to allow these from SMEs themselves in the PPF's last levy consultation, while "concerns have been raised by other stakeholders about the impact any such move would have on a very successful collection system".

In a letter to Mr Field, Oliver Morley, the PPF's chief executive, remembered schemes can apply to pay their levy invoice by instalments under a payment plan, and that the pensions lifeboat will revisit its policy for accepting applications in this area, including the policy for waiving interest.

He also revealed the PPF is currently carrying a quantitative survey of its levy payers and establishing an SME forum, which is expected to have its first meeting in early 2019.

maria.espadinha@ft.com