The
Government’s Pension Protection Fund (PPF) is intended to provide better
protection for the accrued rights of staff with defined benefit occupational
pension schemes in organisations that become insolvent. It is clearly the
flagship of the Government’s comprehensive Pensions Bill, which is now coming
towards the end of its passage through Parliament.
The
Government has stated that the PPF will come into operation in April 2005, just
before the likely date of the next general election.
Yet,
the EEF recently conducted a survey among its biggest members with Aon Consulting, and found that
nearly 85 per cent of respondents felt the PPF’s introduction would have either a negative
impact or no impact at all on their decision to provide a defined benefit
occupational pension scheme in the future. This indicates that the provisions
in the Pensions Bill will do little, if anything, to encourage employers to
introduce new, or enhance existing, occupational pension arrangements for staff.
The
Pensions Bill currently consists of 316 pages with 310 clauses and 13
schedules. But there is still a considerable lack of information about how the
PPF will actually operate, and its likely impact on employers offering defined
benefit occupational pension schemes.
The
EEF’s survey revealed that
employers supported the idea of the PPF in principle as they felt some greater
financial security should be provided for scheme members and could help rebuild
employee confidence in occupational pension schemes. But they also indicated
they were lacking enough information to enable them to make a proper
assessment of its practical implications.
Employers
need to know not only how much the PPF levy will cost their organisation, but
what, if any, changes they may have to make to their pension scheme’s
investment strategy when the risk-related element of the PPF levy is eventually
introduced.
For
the PPF to be accepted by employers, it needs to be determined by a combination
of risk-based and scheme-based factors. Yet the Government has decided that,
initially, it will only be based on scheme-related factors. This half-hearted
approach to implementing the PPF is very unsatisfactory, and it won’t wash with
employers.
The
Government must produce a detailed timetable for the risk-related element of
the PPF, which is clearly set out in the Pensions Bill
itself. So far, too many vague statements on this issue have peppered
Parliamentary debates.
Members
of defined benefit occupational pension schemes will be the ultimate
beneficiaries of the PPF’s
‘insurance’ arrangements as the PPF will provide them with greater financial
support. As more than three in four respondents to EEF’s survey indicated, employers should therefore
have the option of being able to recover the cost of at least the
scheme-related element of the PPF levy from members.
By David Yeandle, deputy director of employment policy, EEF
