Some of the UK’s largest co-operatives will continue to be hit by "arbitrary and unfair" extra Pension Protection Fund (PPF) charges of up to £500,000 annually.
Despite concerted lobbying from sector body Co-operatives UK and its members, the PPF has confirmed it will continue to charge mutuals on the basis of incomplete calculations which make them appear financially weaker than they actually are. This application of flawed methodology resulted in extra pension protection fees of between £40,000 and £500,000 for some of the UK’s largest co-ops in 2016.
Co-operatives UK Policy Officer James Wright said: "This is arbitrary, distortive, costly and very unfair. The Pension Protection Fund‘s rules were written in a way which unwittingly but harshly penalises businesses for no other reason than because of how they are incorporated."
The rules for how the Pension Protection Fund calculates its fees do not properly account for the growing number of corporate forms that register away from Companies House, including co-operatives, building societies, and charitable incorporated organisations. Whereas companies are charged a pension protection fee based on how likely they specifically are to become insolvent, the fees for mutuals are based on a highly distortive scheme average, because the relevant information is not filed with Companies House. For some leading co-operatives the scheme average score made them appear considerably more risky than they really were and as a result their pension protection bills skyrocketed in 2016.
"Right now the business environment for co-ops - perhaps the most inclusive players in the economy - leaves a lot to be desired." James Wright, Co-operatives UK
Working through Co-operatives UK, a group of co-ops sought changes to the PPF rules, while lobbying efforts resulted in parliamentary pressure. In a letter to Co-operatives UK the PPF admits that the way it has collected data and made its calculations has resulted in “significant” increases in fees “in certain cases”. However, due to differences between Companies House and the Mutuals Register, it believes it cannot rely on the latter for key data sets.
James Wright said: "The PPF has clearly decided it is better to charge mutuals based on distortive scheme averages rather than trust the publically available data. This may point to shortcomings elsewhere in the framework government provides for co-ops. But regardless, following its annual consultation, the Pension Protection Fund has published rules for next year (2017) which contain the same unfair treatment.
"While the Pension Protection Fund is essentially asking mutuals to accept its very imperfect charging structure for another year, its chief executive (Alan Rubenstein) has told the Pensions Select Committee of MPs his team will make more of an effort to ensure mutuals are fairly treated in years to come, following a more comprehensive review of the rules.
"This is all well and good, but it does point to a bigger problem that often arises in our system when people try to act differently, as co-ops and mutuals do. It’s taken some of our biggest co-ops to kick up a fuss before those in charge acknowledge an unforeseen problem and promise to take greater care in future. How many other biases and inequities against co-ops do the rules of the game contain?
"Theresa May’s government keeps talking about creating an inclusive economy. But right now the business environment for co-ops - perhaps the most inclusive players in the economy - leaves a lot to be desired. We’re hoping government can at least do some simple things better for co-ops in 2017."