Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling) Order 2025

Viscount Younger of Leckie Excerpts

Wednesday 23rd April 2025 Grand Committee

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank the noble Lord, Lord Davies, and the noble Baronesses, Lady Altmann and Lady Drake, for their contributions to this interesting evening. I bring fellow Peers back to the order before us—the Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling) Order 2025—which is the basis for our discussion today, rather than the wide-ranging subjects we have dealt with.

The order says that the Pension Protection Fund levy cannot exceed £1.4 billion, but the Pension Protection Fund has announced that it plans a levy of no more than £45 million, as referred to by the noble Baroness, Lady Drake, and potentially of zero. I cite this from the 2025-26 plans of the Pension Protection Fund.

The background is that, when the PPF was created, the worry was that if things turned out badly and lots of underfunded DB pension schemes went bust, the hole in the PPF would be met by jacking up the levy on the sponsors of surviving DB pension schemes—in other words, the employers. Two protections for the employers were put in place: the levy cannot rise by more than 25% from one year to the next and it cannot exceed the levy ceiling, which is the number in this order.

What actually happened was that the levy grew for a while, though got nowhere near the ceiling, but then started to fall owing to a combination, as has been referred to, of good investment returns at the PPF, lower than expected numbers of insolvencies—which is great news—and improved scheme funding. That all gives rise to it being in “robust health”, as the noble Lord, Lord Davies, defined it, and the comments around surplus or reserves, which we are not to talk about.

I guess that the PPF would like to charge a zero levy but does not feel that it can; once it is zero it can never be reintroduced, because it cannot rise by more than 25%, and 25% of zero is zero. It has therefore been lobbying the DWP for a while to allow it to set a zero levy and still be able to bring it back later if, unhappily, things go wrong. I think it has won the argument and I hope that a measure to this effect will be included in the forthcoming pensions scheme Bill that has been referred to.

This order, which is what we are talking about, is a formality and the ceiling obviously does not bite in any conceivable world. Can the Government confirm that, following the success of the PPF, they plan to change the rules to make it possible—this is the important part—for the PPF to charge a zero levy? Other noble Lords have referred to this flexibility that is needed. I hope the Minister can give us a positive steer on that.

[Viscount Younger of Leckie (Con)]

My Lords, I thank the noble Lord, Lord Davies of Brixton, for securing this important and timely debate about a topic that encompasses and highlights the financial security of retirees, impacts the stability of the economy and involves the balance of responsibility and the relationship between employers, individuals, pension fund boards and trustees, and the Government. As always, it is a pleasure to precede the Minister, the noble Baroness, Lady Sherlock. As she might expect, most of my questions will be directed more towards her than to the noble Lord.

We are not here to contest the order—the statutory annual levy rise in line with the growth of average weekly earnings, thereby increasing the PPF and the occupational pensions scheme levy ceiling by 4% for 2025-26. As the noble Lord, Lord Palmer, said, it is a formality. However, there are legitimate questions to ask and this is an opportunity for me to ask some questions from the Opposition about government strategy, if I may.

First, I am sure your Lordships will agree that, as a safeguard, the Pension Protection Fund is a crucial backstop for protecting the retirement savings of millions of people in the UK. I very much agree with the compliments expressed by the noble Baroness, Lady Altmann, about the PPF and its management. It seems obvious to say this but, nevertheless, I will say it: we should not take for granted the importance of financial security in retirement, especially as people are living longer and relying more on the provision of private pension income.