§ Lord Oakeshott of Seagrove Bayasked Her Majesty's Government:
In relation to pensions in payment where the pensioners retired before April 1997, what level of inflation-proofing will be provided by the proposed Pension Protection Fund (PPF); and for how many people and by how much on average that inflation proofing would fall short of the inflation protection to which they would have been entitled from their pension scheme before the assumption of responsibility by the PPF. [HL1452]
§ The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham)For pensions in payment where the pensioners retired before April 1997 no inflation-proofing would be provided were they to enter the proposed PPF. However pensions in payment where the pensioner retired after April 1997 would receive inflation-proofing up to a cap of 2.5 per cent or RPI, whichever is the lower, on post-April 1997 accruals.
145WADetails for how many people and by how much on average that inflation-proofing would fall short of the inflation protection to which they would have been entitled from their pension scheme before the assumption of responsibility by the PPF are not available.
§ Lord Oakeshott of Seagrove Bayasked Her Majesty's Government:
Further to the Written Answer by the Baroness Hollis of Heigham on 24 June 2003 ( WA 13), what are the bases on which they have arrived at their current estimated annual cost of £300 million for the Pension Protection Fund, and the reasons, including the cost effect in each case, for the reduction from the cost of £340 million to £375 million previously estimated. [HL1453]
§ Baroness Hollis of HeighamIn recalculating the costs, the same methodology was used as set out in the written reply of 24 June 2003, but updated to take account of current market conditions and the decision taken on the precise nature of the PPF compensation payable.
§ Lord Oakeshott of Seagrove Bayasked Her Majesty's Government:
In estimating the cost of the Pension Protection Fund, what estimate they have made in respect of companies which avoid insolvency but are unable to make good underfunding in their pension schemes. [HL1454]
§ Baroness Hollis of HeighamIn order to be eligible for compensation from the Pension Protection Fund (PPF), not only must the defined benefit or hybrid pension scheme be with insufficient assets to buy out the PPF level of benefits, but its sponsoring employer must also first be insolvent. So to that extent we did not
Attendance Allowance Industrial Injuries Benefits Disability Living Allowance Motability Specialised VehiclesFund Vaccine Damage Payments Total 1993–94 2,297 878 3,547 3 # 6,725 1994–95 2,484 894 3,954 2 # 7,334 1995–96 2,689 896 4,659 4 8,248 1996–97 2,846 884 5,350 3 # 9,083 1997–98 2,908 862 5,713 4 # 9,487 1998–99 3,009 854 5,969 5 9,837 1999–2000 3,112 830 6,240 6 # 10,188 2000–01 3,203 823 6,550 7 66 10,649 2001–02 3,302 823 6,953 10 7 11,094 2002–03 3,340 804 7,246 8 2 11,400 2003–04 3,342 748 7,541 8 3 11,642 Figures may not sum due to rounding.
Notes: All amounts are shown in £ millions and are in 2003–04 prices calculated using the GDP deflator published at Pre-Budget Report 2003.
The symbol # denotes amounts less than 1 million.
146WAneed to take account of solvent employers in calculating the cost of the PPF.
Members of schemes where the sponsoring employer avoids insolvency will be protected through the new full buy-out regulations and scheme-specific funding arrangements.
Where a sponsoring employer is solvent and its salary-related occupational scheme starts to wind up, regulations have been introduced so that the debt due from the employer is calculated on the basis that the scheme should be able to meet the full costs of winding up and the full benefits that scheme members have accrued and expect to receive.
Under our proposals to replace the minimum funding requirement with scheme-specific funding arrangements, trustees and employers will be required to agree a strategy for funding the scheme's pension commitments and for correcting any underfunding. Where a sponsoring employer is unable to meet those funding requirements and becomes insolvent, the PPF will compensate the pension scheme members.
It is also worth pointing out that the funding of defined-benefit schemes is a long-term business—temporary underfunding does not necessarily affect member security.