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Pension Protection Fund (Ppf Ombudsman) Order 2005

Volume 670: debated on Tuesday 1 March 2005

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3.48 p.m.

The Parliamentary Under-Secretary of State, Department for Work and Pensions
(Baroness Hollis of Heigham

rose to move that the Grand Committee do report to the House that it has considered the Pension Protection Fund (PPF Ombudsman) Order 2005. [8th Report from the Joint Committee]

The noble Baroness said: I hope that it will be for the convenience of the Grand Committee and with the consent of Members opposite that we take all four measures together, rather than seek to make separate speeches on each.

I do not think that the noble Baroness had asked me, but I am prepared to go along with it.

I thought that the Order Paper had indicated that they would be taken together. I was just reiterating that.

I had not been asked or given any indication, but, now that the noble Baroness has asked, I accept it. It would perhaps be better, next time, to have been asked.

I apologise if there has been any misunderstanding. I am very grateful for the spontaneity, responsiveness and cooperation that has been exhibited by the Members opposite, as always.

These statutory instruments are needed to give detailed effect to some important aspects of the PPF and the Pension Protection Fund Ombudsman. The PPF, now established under the provisions of Part 2 of the Pensions Act 2004, is a major part of the Government's commitment to protect better the defined benefits of occupational pension scheme members.

Your Lordships will know—I am sure that it is scarred on the hearts having spent many hours in this committee room together—that the PPF is a non-departmental public body governed by an independent board. Its members have now been appointed. From 6 April this year, if a company with an eligible defined benefit pension scheme becomes insolvent and there is no prospect of a scheme rescue, and its pension fund is insufficiently funded to pay the PPF level of benefits, the PPF will pay compensation to members at the PPF level of benefits.

Compensation will be payable at a rate of 100 per cent of the PPF level of benefits for people who have reached their scheme's normal pension age, while people below that age will receive 90 per cent compensation. While it is right to protect members' benefits, the taxpayer should not be asked to foot the bill, particularly as so many taxpayers are not members of occupational pension schemes and will not enjoy the benefit of any such protection. The PPF will instead be funded by levies on occupational schemes whose members are potentially eligible for PPF compensation.

We have provided for a disputes process that will enable interested parties to seek a review of certain key decisions by the board. These are set out as reviewable matters in Schedule 9 to the Act. There is also a right of complaint in cases of alleged maladministration by the board. A party will be able to refer unresolved cases onwards to the newly established and independent PPF Ombudsman, who will have the final say on disputes unless a party wishes to appeal to the High Court on a point of law.

As I understood it, the noble Baroness said that the costs of this operation would be borne by a levy on the business and so on. But each of the orders states that:

"A full regulatory impact assessment has not been produced for this instrument as it has no impact on the costs to business".
Does it have an impact on the costs to business or not?

These regulations are being laid within six months of completion of the Bill—indeed, virtually within three months. This means that we did not need to go out to consultation. It also means that they come still within the remit of the regulatory impact assessment carried out for the Bill, which examined extensively the levy that had the major impact on business. This was of course the initial levy, which then goes on to be the full levy. We estimate that that will be £150 million in the first phase and £300 million after the phasing-in during the initial period.

The other levies—the ombudsman levy, the fraud levy and the administrative levy—are all relatively small sums; £15 million for the administrative levy; nothing for the fraud levy at the moment as it is not necessary; and the ombudsman levy will possibly be a couple of million pounds in due course. That will have no impact on business effectively. The big levy has already been covered in the RIA that we undertook for the Bill at the time we were discussing it.

I understand very well the point that the noble Baroness made about the orders being introduced within the set period after the Bill went through. But, if I understood her correctly, it remains the case that there still will be a cost on business as a result of these orders—or at least some of them.

I do not deny that for a moment. I am saying that where the cost is significant in such a way that it can be calculated in terms of moneys above and beyond the actual cost to the levy, if you think about it, the cost of the levy is made clear in broad terms in the order and in terms of what I am going on to say. It will be a direct charge on industry, whether it is the administration levy or the initial levy. We have discussed this in great detail.

The implications for modification have no costs for industry; for the ombudsman levy the costs will be negligible; and for fraud compensation, negligible. The only significant cost is the first one, which is built into the regulations.

I do not know whether £15 million is a negligible sum, but in any event it should be stated that there will be a negligible increase in costs, not that there will be no increase.

Can the noble Lord indicate which regulation he is referring to? I have not reached it yet.

Let us take as an example the Pension Protection Fund (PPF Ombudsman) Order. At the end it states:

"A full regulatory impact assessment has not been produced as it has no impact on the costs of business".
That is not consistent with what the noble Baroness just said.

What I said was that the first order we are considering, which I have yet to describe, has an impact on business and those were thoroughly and fairly described and assessed in the regulatory impact assessment, which is still valid. The other three orders have little or no impact on business, and therefore that description is correct. Perhaps I am being slow today, but I am not sure what the noble Lord is concerned about.

I do not want to make a meal of this, I am just saying that the Explanatory Memorandum is not correct. I have just quoted from it to the effect that the order has no impact on the costs of business. That is not true.

Yes, I have quoted from the back page of the order that relates to the ombudsman. It states:

"A full regulatory impact assessment has not been produced as it has no impact on the costs of business".
But the money must come from somewhere.

The PPF ombudsman cost is relatively trivial; we think it may be a couple of million pounds a year. Therefore, we cannot assess this against schemes such as those in the DB sector, with 5 million or 7 million people. I suppose we could say that it might cost 2p, 3p or 5p per member, but I regard those figures as effectively negligible.

There is a real issue, one that I had expected the noble Lord to raise, about the levy—the insurance one set out in the first set of orders. Those were considered thoroughly adequate in the regulatory impact assessment. The rest of the costs are either non-existent—for example, modifications—as far as we can tell, or negligible, as is the case with the ombudsman, because the costs are so small.

Perhaps, I may now turn to the individual statutory instruments, which I am content are compatible with the European Convention on Human Rights. I will start with the Occupational Pension Schemes (Levies) Regulations 2005. These provide for the calculation, collection and recovery of the administration levy and the initial PPF levy which are to be paid by the trustees or managers of schemes whose members are eligible for the PPF.

The administration levy is raised by the Secretary of State to recoup his costs in providing grants to fund the administrative costs of the PPF board. These regulations provide for the administrative levy to be charged at a rate per member, and the rate will be banded according to scheme size. The initial, substantive £150 million levy will be raised from 6 April 2005 and, together with the assets of schemes that are taken into the PPF, will make sure that there are funds in place to meet any obligation on the board to pay pension compensation.

In the case of multi-employer schemes, hybrid schemes and schemes with a partial Crown guarantee, levies will be charged only in respect of those members who may become entitled to PPF compensation. From April 2006, the Secretary of State expects to raise a levy to recover his expenditure in respect of the new office of the Pension Protection Fund Ombudsman. The provisions for the PPF ombudsman levy will be similar to those for the administration levy.

I now turn to the Pension Protection Fund (Compensation Cap) Order 2005 which places a limit on the amount of compensation that certain members may receive from the PPF. Paragraph 26 of Schedule 7 provides the Secretary of State with the power, by order, to specify the amount of the cap, which is £27,777.78 for 2005–06. The cap applies to the combined entitlement to periodic and lump sum compensation and is applied before calculating the 90 per cent compensation level. This effectively brings the cap under the PPF to £25,000. The compensation cap protects the interests of levy payers by controlling costs while ensuring a sufficient level of compensation for scheme members.

4 p.m.

I turn now to the most complex of the regulations, the draft Occupational Pension Schemes (Modification of Pension Protection Provisions) Regulations 2005. I hope noble Lords have received a copy of a background briefing paper, which I think will be helpful. It looks as though we are seeking cover for people who transgress the rules, if you like, and it will be helpful for Members of the Committee if I explain how the PPF assessment period will work. They will, of course, have recourse to the briefing document which I circulated in the past couple of days.

The assessment period is the period when the PPF determines whether it should assume responsibility for a scheme. During the assessment period there are two tests: first, the board must determine whether or not the scheme can be rescued—that is, whether it can remain as an ongoing scheme with an ongoing sponsoring employer; and, secondly, the board must obtain a PPF valuation to establish whether or not the assets of the scheme are sufficient to cover the PPF level of liabilities.

If a scheme rescue is not possible and the assets of the scheme are not sufficient to cover or to meet the PPF level of liabilities, then the PPF will assume responsibility for the scheme.

During the assessment period, in order to protect the assets and cap the liabilities of the scheme, the scheme is effectively "frozen"—Members of the Committee will recall our discussions on this issue—and a number of restrictions are placed on the trustees. For example, during this period trustees are obliged to pay benefits at the PPF level of compensation and they may not accept new members. We discussed this issue very fully during the course of the Bill. These restrictions also include preventing the trustees from discharging any of their liabilities to provide pensions or other benefits. In other words, during that period the situation is frozen while an assessment is being calculated.

However, regulations under Section 135(4) will prescribe the specific circumstances where trustees can discharge some of their liabilities during the period when the scheme is frozen. In addition, and subject to specific conditions, the board may validate a trustee action where the trustees have contravened the restrictions on them not to discharge any liabilities.

It may be helpful if I give an example of where the board might use the power. A new employer may take on the liabilities of the active members only of the scheme as part of the sale of the business of the old sponsoring employer. The trustees would therefore be discharging their liability to provide pensions and benefits in respect of these members where they transfer to the new employer's pension scheme. Provided that as a result of the transfer there is no decrease in the proportion of assets to the proportion of the PPF liabilities remaining in the scheme, the board can then validate retrospectively this action. In other words, where the active members go across and the pro rata share of the pension contributions go across, but no more than that, the board can validate it. In practice—this is the key—we would expect the board and the trustees to agree that such a transfer would be in the best interest of all members of the scheme before it was finalised.

I have outlined the circumstances where, despite the scheme being effectively frozen, trustees may discharge some of their liabilities during the assessment period. But obviously, in my view, it would be extremely unwise of them to take any such action without having consulted the regulator first to ensure that all parties agree that it is in the best interests of the scheme and its members.

These affirmative regulations provide for this situation in two very important ways. First, they enable the PPF valuation to take into consideration any change to the assets and protected liabilities of the scheme as a result of the trustees discharging a liability or, as I say, a partial liability during the assessment period. Secondly, they enable the amount of compensation payable to a member to be adjusted to take into consideration any liability which has been discharged either during the assessment period or on the assessment date but before the start of the assessment period. Broadly speaking, they ensure a member is not paid compensation in respect of a benefit which has already been discharged from the scheme. We will need such powers in order that the trustees do not immediately stop the clock ticking on sanctions on their behaviour.

I turn, finally, to the Pension Protection Fund (PPF Ombudsman) Order 2005 which makes further provision for the PPF Ombudsman and any Deputy PPF Ombudsman. The order provides, for example, for remuneration and the reimbursement of expenses of the PPF Ombudsman. It further enables the PPF Ombudsman to appoint the necessary staff.

While allowing the PPF Ombudsman to delegate some functions to his staff, the order does not allow him to delegate key functions such as the determination of reviewable matters and complaints referred to him. These are rightly reserved for him and any deputy. Article 6 enables the PPF Ombudsman to require the provision of information and documents relevant to his investigations. As a counterweight, Article 7 restricts the PPF Ombudsman's disclosure of information he obtains.

Together, these regulations and orders ensure that the PPF is properly funded; they protect levy payers by ensuring that there is a limit to the compensation payable; they allow for accurate calculations for valuations and compensation, normally where there is a contravention of the freezing period; and they establish the framework for the PPF Ombudsman to fulfil his remit of providing an independent means of reviewing the PPF's decisions. I commend these regulations and orders to your Lordships.

Moved, That the Grand Committee do report to the House that it has considered the Pension Protection Fund (PPF Ombudsman) Order 2005 [8th report from the Joint Committee].(Baroness Hollis of Heigham.)

These are, no doubt, the first of dozens, if not hundreds, of orders to be made under the Pensions Act which we in this room spent something like 90 hours discussing.

Following an informal conversation with the noble Lord, Lord Skelmersdale, perhaps I should say that the chickens have come home to roost. We were very happy to see negative become positive throughout the course of the Bill and the noble Lord, Lord Higgins, will now enjoy the glory of his conquests.

That having been said, it is right that we should debate them. However, we were probably wrong to agree to taking the orders together because they raise separate issues. It would have been more focused—if that is the "in" expression—to have taken them separately rather than together.

Rather strangely, the noble Baroness said that it was clear from the Order Paper that they were going to be taken together. That certainly was not the case—it would be very strange if it was—but, at all events, she then proceeded not to take them even in the order in which they are on the Order Paper. She jumped around from one order to another in a different sequence, which made it rather difficult to focus on them. However, we must do our best. I shall take them in the order in which they are on the Order Paper.

The first is the Pension Protection Fund (PPF Ombudsman) Order, which reflects some of the matters we debated in the course of the passage of the Bill. It makes provision for the Secretary of State to make payments to the ombudsman or the deputy ombudsman by way of remuneration, compensation, pensions and allowances. The noble Baroness will remember that there was some discussion at the time as to what the appropriate pension arrangements would be for the ombudsman and other officials and, in particular, whether it was appropriate in the present circumstances, given the attrition among final salary schemes, for the officials operating under the Bill to be in a final salary index-linked scheme. Perhaps the noble Baroness will tell the Committee whether under the order it is proposed to give such a pension arrangement to the ombudsman, the deputy and others.

Can the noble Baroness indicate the number of people the ombudsman is likely to employ? We need to be clear that it will be sufficient. We know only too well from the experience of the Parliamentary Ombudsman, particularly in relation to the Equitable Life affair, that the staff levels were clearly inadequate to carry out the job. Even now, many years after it happened, they are only just beginning to do so. Can the noble Baroness say how many staff are likely to be employed, over time, by the PPF Ombudsman?

The order also deals with restrictions on the disclosure of documents and information which is obtained under the powers in the order from those who may have information helpful to the ombudsman. I am glad to see that there are some restrictions on the disclosure of information. So far as concerns confidential information—for example, between lawyers and their clients; we agreed that it was not true of accountants—can the Minister say whether that information will be passed on to the people who appear in the list in subsection (7)? Those are the main points on that order.

I turn now to the next one on the Order Paper, which is the Pension Protection Fund (Pension Compensation Cap) Order 2005. This refers, of course, to paragraph 26 of Schedule 7. While the noble Baroness was speaking I looked at that and remembered the ghastly amount of algebra which appears in it. But, surprisingly, the Minister now seems to have quantified it and in her opening remarks she mentioned the sum of £25,000. I am not clear about the basis for that calculation. Perhaps she will let us know how the figure has been arrived at. It is obviously rather important to those who are hoping to benefit and to those who are operating these schemes.

The next item on the Order Paper is the Occupational Pension Schemes (Modification of Pension Protection Provisions) Regulations 2005. I am not clear how it modifies the regulations because, as far as I know, we have not had any regulations up to now. Some of the grammar in it is fairly ropey anyway.

I think the brackets are probably in the wrong place. At all events, perhaps the noble Baroness will confirm that we have not so far approved any regulations under the Bill, so we cannot now be modifying those regulations by this regulation.

The provisions raise the question that, if we are modifying something, why are we doing it so soon after the passage of the Act? We thought, perhaps misguidedly, that we had examined every conceivable aspect of the measure and reached agreement on what it should contain, and suddenly we find that there are to be modifications.

I find this aspect of the Bill slightly puzzling and I am grateful to the noble Baroness for providing me with an explanatory note—which, to some extent, she repeated in her opening remarks—concerned with the assessment period and so on.

When I first looked at the regulations I was not quite clear whether they had anything to do with the change in policy which the Government appear to have made to the scheme since we debated the Bill. I am looking at Pensions Week—I find it rather helpful in some respects and it keeps one up to date—which reports that the NAPF chairman has sent an open letter to the Secretary of State attacking the Government's shifting policy over PPF, which has now become retrospective, allowing schemes which were not yet wound-up to be eligible for the fund.

He continued:
"The inclusion of schemes which have not yet begun to wind-up, but whose sponsors have become insolvent … threatens to swamp the PPF with claims immediately as it begins operations".
I was not clear whether the regulations in relation to the assessment period, calculations and so on, were in some way related to that change in policy, which certainly creates a scenario different from the one we envisaged when the Bill was passed. We now find that those we thought would come under the financial assistance scheme may actually get into the PPF. That may be an advantage from the point of view not only of the trustees but also of the Government because the costs will then fall on the pension industry rather than on the Chancellor of the Exchequer's financial assistance scheme.

4.15 p.m.

If I am totally mistaken, as I may be, in thinking that the order has anything to do with that, could we be told when we are likely to have an order that deals with the matter? The noble Baroness's note was helpful in elucidating the situation. Again, the grammar is a bit shaky. It states:
"In order to fully understand the draft occupational pension schemes it is necessary to give details of the assessment period".
Leaving the split infinitive aside, it seems to me that it ought to read: "In order to explain the draft occupational pension scheme". The whole thing is getting a bit slack around here. We shall run into problems if we are not careful and start agreeing to Statutory Instruments that are not defined as closely as they might be.

The Occupational Pension Schemes (Levies) Regulations 2005 relate to the initial levy. Apparently someone will have to pay the initial levy even if they cease to be eligible during the initial period. That seems a strange arrangement. Perhaps the noble Baroness could justify it. That raises the matter of the levy itself. We would be grateful to know to what extent the Government are now in a position to indicate how they think the levy will operate and at what sort of level. It will obviously depend to a large extent on the way in which those that might have been covered by the FAS will now be covered by the PPF.

Those are the main points at issue. No doubt we will have many more orders on this Bill. I do not think that I can reasonably say that we will look forward to debating them at an appropriate time in the future, but it is important that we should because we agreed to affirmative resolution for what we thought were important issues.

I do not have any substantive further questions on the first and third of the four instruments, other than one or two already asked by the noble Lord, Lord Higgins. I do not propose to detain the Committee on those, except to say that, although I hesitate to exchange "bracket positions", I would have thought that the bracket on the third instrument was in the right place. However, I shall not push the point.

I wish to ask questions on the more substantive points of the second and fourth instruments. On the Pension Protection Fund (Pension Compensation Cap) Order 2005, I have a question about how indexation of pensions in payment under the PPF will work and how it will be applied. I was surprised to read in Commons Hansard that yesterday the Secretary of State told the House that many members of schemes likely to be covered by the FAS did not offer index-linking of pensions in payment to their members. Obviously, we are discussing the PPF and not the FAS today, but what proportion of schemes liable to contribute and be covered by the PPF are in that same position of not offering index-linking to pensions in payment? I appreciate that the noble Baroness may not have the figure at her fingertips, but I would be grateful if she could tell me that in writing, given that we had that interesting answer from her right honourable friend yesterday. That is my main question on that.

Having read carefully the Occupation Pension Schemes (Levies) Regulations 2005, I think that I am right in saying that they apply only to the initial levies. I would be grateful if the noble Baroness could confirm that. The regulatory impact assessment that we have with it refers at length to the effect of moving over to a risk-based levy. That would be a major further step and we will wish to examine the matter in detail when it comes. It is only fair to put the Government on notice now, as we did clearly during the Bill, that it will be extremely important for us on these Benches that the move to an 80 per cent risk-based levy takes place after the first year of the initial levy and is not drawn out any further than that.

I have been very encouraged by what I have heard so far about the progress made by the PPF in commissioning professional work from PWC to assess the basis on which a risk-based levy should take place. I know that that report has been delivered and is being carefully considered by the PPF. We are very keen that that momentum should be kept up. Will the noble Baroness bring us up to date on when she expects the consultation on that report and the risk-based levy to start?

I have one further question on the detail of the initial levy. On what date is it expected that the bills will be sent out? When will funds have to pay? As has been suggested to me, will the larger schemes get their bills first? What sort of period will it be over? I know that these are not large bills but none the less it is important that the system for collection is set up fairly. Also, what sanctions will there be on late payers or non-payers?

My Lords, I shall do my best to answer those questions. I apologise if there was any misunderstanding about taking all the statutory instruments together. Certainly, our forward business note said that they were to be debated together. I think that the noble Lord, Lord Skelmersdale, will confirm that it is on the forward business note. It is not on the minute paper but on the business managers' forward business note.

We can do something about that if you wish. It is in your hands.

Thank you very much, we would love to. We wish to see it, not take it.

I might be wrong, but I believe that it was an agreed position that was referred to in our whip. If not, I apologise. However, I cannot promise to send our whip to everyone else.

I will check whether that information was on the business managers' forward business note that goes out to the Front-Benchers of all parties. I understood that it did. If I am wrong on that I shall apologise. But we derived our whip from that, and that is why I had assumed that that approach was simply for the convenience of all Members of your Lordships' House.

I shall now respond to the specific questions on the PPF ombudsman. The noble Lord, Lord Higgins, pressed me about costings, staff, whether there would be enough money and so on. At the moment we have a pensions ombudsman. In the Act there is a proposal for a separate PPF ombudsman. We agreed at the time that it was sensible that Sir David Laverick, the existing pensions ombudsman, should take on that additional function, and he is doing so. Therefore he is already a member of the Civil Service scheme and so on.

At the moment the pension ombudsman's costs are running at about £1.5 million a year. We would therefore expect the PPF ombudsman's costs to be very much smaller. We do not expect the first levy for that until 2006–07. If it is any guidance, although we cannot predict how many queries we may get under the PPF ombudsman hat, he currently gets some 3,000 enquiries a year under his general pensions ombudsman hat. Although we have appointed him to carry on that function, as well as a deputy, we do not yet know whether we will need additional staff, and, if so, how many. It will depend on the amount of business. As Members of the Committee will see, it is not great so far.

On the point about the cap, the noble Lord was absolutely right to refer to the calculation as algebra. I am sure that we made it clear when we discussed the issue that there would be a £25,000 cap on eligible payments at the age of 65. If you retire earlier than that, the cap is proportionately reduced; if you retire later, it is proportionately increased for actuarial equivalents. The algebra comes in determining the actuarial equivalents. Our position on that has not changed at any stage. A series of questions was asked on the modification regulations. The noble Lord, Lord Oakeshott, is correct: the syntax in the title is correct. The regulations on the modification of the cap are negative and have not yet been laid. There has been no change in policy but, because we are changing those, they need to come by the affirmative procedure to your Lordships' House. The instrument is necessary in that form because it modifies the Act: Section 143, on evaluations, and Schedule 7, on compensation.

The noble Lord quoted extensively from NAPF. I was disappointed in NAPF's response. The quick response is that that has absolutely nothing to do with the issue of whether the PPF is retrospective. Perhaps I may put on the record, first, that the PPF is not retrospective. Schemes go into the PPF only if an insolvency event starts after 5 April 2005. That is why we very carefully, perfectly properly, under pressure from Members opposite, made sure that there was no missing year between when FAS ended and the PPF started. Any suggestion from NAPF that the PPF is retrospective is incorrect.

Secondly, NAPF's statement that it will swamp us again is incorrect. We are not buying annuities which will swamp the scheme; we will be meeting pension liabilities as pension ages fall in, therefore it will happen over time. So, contrary to the suggestion that the PPF will be swamped, we spent time in Committee trying to suggest that in its opening years the PPF would be cash-rich rather than cash-poor because it will be dealing with assets coming in well in advance of timed liabilities having to be paid out. So NAPF is incorrect on that.

Has there been any change in the line between those eligible for the FAS and those eligible for the PPF?

No, not since we made the changes towards the end of the Bill and the following statements. The noble Lord will remember that noble Lords quite rightly pressed me very hard that there should be no missing year between the two. As a result, if an insolvency event has occurred before April 2005 and a scheme has been wound up—in other words, if the employer is insolvent and the assets cannot meet the liabilities of the scheme—the scheme may get compensation from FAS. If that happens after 2005 the compensation comes from the PPF. That has not changed. What has changed is some ambiguity about what happens between 2004—the change of the winding-up procedure—and when the PPF comes into being. I courteously suggest that NAPF is wrong on all those points.

The noble Lord, Lord Higgins, asked why we did not have regulations—I have forgotten which regulations he thought there should be. They are not there because the powers are covered in the primary legislation.

The noble Lord, Lord Oakeshott, asked me whether I knew about the figures for what schemes currently have indexation and those that do not. I do not have those figures; I am not sure that they exist. If they do, I shall ensure that the noble Lord is informed about them.

Why, then, is it possible for the Secretary of State to make that assertion about the financial assistance scheme, and what is he basing that on if those figures do not exist for PPF schemes?

I shall write to the noble Lord on that. First, with FAS, we are to some extent dealing with schemes that have already collapsed. We know what the conditions were of the 300 or so schemes listed in the document put before the House. Of course the noble Lord does not know any more than I do which schemes will fall within the PPF, so we cannot possibly tell what their terms are—what their arrangements are for partners, unmarried partners, civil partners, indexation and so on. If the noble Lord can tell me which schemes are going to collapse in 2010 and so on, I might then be able to tell what the implications are for the PPF. By definition, the PPF is forward-looking: we cannot tell what schemes will come in and therefore we do not know what conditions they will carry.

No, I was careful in how I phrased my question. I said: "to be eligible for the PPF to be contributors". We are talking about the universe of DB schemes here—roughly what proportion there are. I would appreciate it if the noble Baroness could let me know the basis on which that calculation was made on the FAS. It would be interesting to see whether there is a read-across to the PPF.

4.30 p.m.

I am perfectly happy to share the information I have with the noble Lord. It was a perfectly reasonable request.

Finally, the noble Lord made a general point about his concern to scrutinise the introduction of a risk-based levy. He went on to suggest—I want to correct this; I would not wish any misapprehension on it—that the risk-based levy would come into effect after the initial period of one year. No; there is a transitional period which runs for four years. I think that the noble Lords, Lord Oakeshott and Lord Higgins, and I have had discussions on this before. By the end of the fourth year, all schemes, unless there is a de minimis, will be within the risk-based levy, at which point there is the 80/20 apportionment rule.

In the transitional period, schemes may voluntarily bring themselves in before the four-year period. Whether they choose to do so will depend, I suspect, on when their three-year valuation cycle is due and their own assessment of whether they stand financially to gain. So I would not wish there to be any misunderstanding between year 1 and year 4. There will be a phased-in introduction of the risk-based levy. From the fourth year on, all schemes will be within that. As I said, most of the questions were quite detailed and specific. If I have overlooked any question, I should be very happy to be reminded of it and will do my best to answer it. If your Lordships think I have answered the questions, then I hope you will allow me to refer the order to the House.

On that point, I asked the noble Baroness to confirm—I hope that I have it right—that this is not referring to risk-based levies in any way. My understanding of the position is not quite the same as the one she has given about the transitional period, but obviously that is a matter for us to look at. I do not want to debate that now. Could she just confirm that this order does not in any way affect risk-based levies?

This order is about the initial period of the 150 levy and the method of apportionment. It is therefore based on scheme size, as is laid out. The noble Lord is correct on that.

On Question, Motion agreed to.