Occupational Pension Schemes (Hansard, 5 November 1998)

§ Mr. Denham

Employers who operate contracted-out occupational pension schemes provide their employees with a pension to replace the pension they would have got had they remained in the State Earnings Related Pension Scheme (SERPS).

In contracted-out occupational schemes, both employer and employee pay lower rate National Insurance Contributions in recognition that full SERPS will not be paid. In a Contracted-Out Money Purchase Scheme (COMPS) part of the rebate is deducted from the national insurance contributions due by the employer. The remainder, known as the age-related rebate, is paid by the Contributions Agency to the pension scheme in the tax year following that in which it is due.

Section 42A of the Pension Schemes Act 1993 (PSA) provides the legislative authority for the age related rebate to be paid by the Secretary of State for Social Security to the pension scheme. This section was inserted into the PSA by the Pensions Act 1995. The intention is that these payments should be funded directly from the National Insurance Fund and classed as revenue forgone. However, the necessary provision to facilitate funding in this manner was erroneously omitted from the Pensions Act. So while there is a legislative duty to make the payments, there is no authority to fund them from the National Insurance Fund. As result a number of ultra vires payments have been made from the National Insurance Fund totalling around £490,000 which will have to be refunded from money voted by Parliament.

An amendment to the PSA to correct this defect will be put before Parliament. This will allow the payments to be funded properly from the National Insurance Fund in accordance with the original intention. Until the provisions are enacted temporary arrangements are necessary to ensure that the payments can continue to be made. Provision will also be made to ensure that the National Insurance Fund reimburses those accounts responsible for funding the payments up to the time when the legislation was brought into force.

Legislation under s177(1) of the PSA does, by default, allow the payments to be paid from money provided by Parliament. Since Parliament did not envisage using provision in this way the ambits of the DSS Votes do not cover age related rebates. A Supplementary Estimate is therefore needed to extend the ambit of Class XII, Vote 2. A token Supplementary Estimate of £1,000 has been sought on Vote 2 to amend the ambit to enable payments, totalling £82 million, to be made to Contracted-Out Money Purchase Schemes in respect of age related rebates. As the Contributions Agency computer system, NIRS2, does not have the functionality to separate the payments in respect of age related rebates, which are paid in conjunction with personal pensions, Vote 2 will, therefore, also be responsible for paying personal pensions. The National Insurance Fund which does have the legislative power to pay personal pensions will refund Vote 2 for the payments made on its behalf. These arrangements will continue until the defective legislation is corrected. An advance of £77 million has been sought from the Contingencies Fund to finance urgent expenditure. The advance will be repaid from Vote 2 when Parliament has approved the necessary token Supplementary Estimate.