Some of the UK’s largest co-operatives will continue to suffer “arbitrary and unfair” Pension Protection Fund (PPF) charges of up to £500,000 a year, say sector leaders.
Despite parliamentary pressure and lobbying from sector body Co-operatives UK and its members, the PPF said it will not change the way it calculates its fees for mutuals.
Co-operatives UK says the PPF uses a “flawed methodology”, with incomplete data making some co-ops seem financially weaker than they really are. This resulted in extra pension protection fees of between £40,000 and £500,000 for some of the UK’s largest co-ops last year.
“This is arbitrary, distortive, costly and very unfair,” said Co-operatives UK policy officer, James Wright. “The PPF’s rules were written in a way which unwittingly but harshly penalises businesses for no other reason than because of how they are incorporated.”
According to Co-operatives UK, the main problem is that the PPF’s fee calculations do not properly account for corporate forms that register away from Companies House, including co-ops, building societies, and charitable incorporated organisations.
While companies are charged a pension protection fee based on how likely they are to become insolvent, the fees for mutuals are based on a scheme average, because the relevant information is not filed with Companies House. This made some leading co-ops appear considerably more risky than is really the case – and as a result their pension protection bills skyrocketed in 2016.
In a letter to Co-operatives UK the PPF admitted the way it has collected data and made its calculations had led to “significant” increases in fees “in certain cases”.
But due to differences between Companies House and the Mutuals Register, it believes it cannot rely on the latter for key data sets.
Mr Wright added: “The PPF has clearly decided it is better to charge mutuals based on distortive scheme averages rather than trust the publicly 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 contains the same unfair treatment.”
Mr Wright said PPF chief executive Alan Rubenstein had promised MPs on the Pensions Select Committee that his team would try to ensure fair treatment mutuals in years to come, following a more comprehensive review of the rules.
“This is all well and good,” he added, “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 acknowledged an unforeseen problem and promised to take greater care in future. How many other biases and inequities against co-ops do the rules of the game contain?”
Mr Wright called on the Conservative government to do more to tackle the unfair playing field for co-ops.
“Theresa May’s government keeps talking about creating an inclusive economy,” he said. “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.”