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BeeHive  >  BeeLines  >  MPs scheme won't have to pay PPF levy

MPs scheme won't have to pay PPF levy

Well, if this doesn’t take the biscuit I don’t know what does. I’ve just found out that the Parliamentary Contributory Pension Fund, the funded final-salary pension scheme for Members of Parliament, will be exempted from having to pay towards the annual levy to support the Pension Protection Fund (PPF).

The PPF, as you know, has just been put in place to (hopefully) provide some level of security to members of final-salary pension schemes whose benefits come to be at risk following employer insolvency. The idea is that all well-run and well-funded final-salary schemes will have to pay annual levies to the PPF as a sort of insurance premium to help those who may need to claim in the future. There has been a lot said about this, both here on the BeeHive and elsewhere, but you’ll know that the National Association of Pension Funds (the NAPF) this week cited the additional costs of providing financial support to the PPF as being among the reasons for the likely decline of final-salary schemes in the private sector.

Some schemes are exempted from having to pay levies towards the PPF, in particular (and sensibly), schemes that were already winding-up before the PPF came into force last April. But the small print actually said that ‘certain schemes and certain types of schemes will also be exempt.’ It now turns out that one of those ‘types’ of schemes will be the scheme that provides pensions for MPs.

The Government runs a number of very large pension schemes for its own employees. Some of these are unfunded and have benefits underwritten by Acts of Parliament and we’ve got a £690 billion black hole in our future public finances earmarked to pay out the promised pension benefits when they become due. The schemes for teachers and the armed forces are in this category and I’d always thought that the different nature of these large unfunded final-salary schemes would provide them with a get-out clause when it came to paying out levies to help other schemes through the PPF. But many Government-sponsored final-salary schemes are funded just like private sector schemes are, the MPs’ scheme falls into this category as do the 99 local Government pension schemes.

The argument for these funded final-salary schemes not needing to pay the PPF levies, as I understand it, is that as they too are considered to be ultimately underwritten by the Government, so they’re never going to go belly-up either, "So why pay the insurance premium?"  This logic implies that as the Government has access to an unlimited supply of money (a.k.a ‘Ours’) it will never default on its pension promises to its own employees. In effect this means that the 5 million or so people in Government-backed schemes have guaranteed pensions which don’t need protecting. Guaranteed pensions are like gold dust. The MPs' scheme is so secure, in fact, that it has been able to buck recent trends and has improved the benefits it provides from fiftieths of final-salary to fortieths. Indeed, the only schemes that need protecting are those in the private sector as they are the only ones likely to fail to live up to their promises.

This has all got me wondering again and I think I’ve cracked the bafflingly-complex problem that we refer to these days as the ‘Pensions Crisis’. If all the 20 million or so of us in the private sector workforce gave up our jobs and went to work as MPs or in local Government, we’d all have guaranteed pensions too and there’d be no pension crisis to worry about. We’d be the envy of Europe! I mean, that would work wouldn’t it? At a stroke! The crisis is nothing to do with pensions at all, the problems are all to do with private sector pensions that’s all.

Everything’s simple when you’ve seen the light isn’t it?

Steve Bee

23 June 2005

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