Pensions Action Group


Press Release from the Parliamentary Ombudsman
8th March 2006

The Parliamentary Ombudsman, Ann Abraham, has today announced that she will publish the report of her investigation into the security of final salary occupational pensions on Wednesday 15 March 2006.

Notes to editors
  The Ombudsman’s role is determined by the Parliamentary Commissioner Act 1967 and is to consider complaints that individuals have suffered injustice in consequence of maladministration on the part of Government departments and other bodies in her jurisdiction.

  The investigation was launched on 16 November 2004. The terms of reference for the investigation are set out in the annex to this press notice.

  The Ombudsman announced that she would publish her report before the Easter parliamentary recess (which begins on 30 March 2006) in a letter to all Members of Parliament on 17th November 2005

  The Ombudsman’s investigations must be conducted in private. Therefore, she cannot discuss the content of the report prior to publication.

Annex - investigation terms of reference

Complainants allege maladministration on the part of the Treasury, the National Insurance Contributions Office of Her Majesty’s Revenue and Customs (NICO), the Department for Work and Pensions (DWP) and the former Occupational Pensions Regulatory Authority (OPRA) in relation to their responsibilities for final salary occupational pension schemes.

The investigation will cover the following specific complaints:
  DWP and OPRA did not take proper care when informing the trustees and members of Defined Benefit (DB) occupational salary schemes about the degree of security of the pensions to be paid from the employers’ plans. In particular, they failed to warn of the risks to non-pensioner members in the event that a DB scheme was wound up. Instead, publications appeared to provide unqualified reassurance. For example:
  The OPRA guidance to Trustees published in 1998 stated that ‘The MFR (Minimum Funding Requirement) refers to the amount of funds that should be in the scheme at any one time in order to meet the scheme’s liabilities if it were to be discontinued.’ This was incorrect, since the MFR was never designed to meet all liabilities of DB schemes on discontinuance, but trustees of such schemes would have been unaware that the statement was incorrect, and would have relied on it in their communication with members. Although the booklet was later amended, the amendments were not brought to the attention of all trustees.
  Occupational Pensions guides published by DWP in May 2002 and October 2003 contained reassurances that occupational pensions were protected by a number of laws, and failed to describe the risks to pensions that might arise if a scheme were to be wound up.

As a consequence, the Government led members of DB schemes to believe that their pensions were safe in the event that their scheme was wound up when this was not necessarily the case.
  Neither the Treasury nor DWP took action to draw limitations of the MFR to the attention of members of DB schemes. A report from the Faculty and Institute of Actuaries entitled ‘Review of the Minimum Funding Requirement’ submitted to the Treasury in May 2000 identified ‘a large and worrying gap between the level of security which the MFR test actually delivers and the public’s perception of what it would deliver’. The report later stated: ‘It is therefore a key conclusion of this review that there should be full and clear disclosure to members of the objectives and limitations of the MFR test and the consequences if their scheme should be wound up.’ This did not happen. Instead, guides aimed at scheme members continued to provide reassurances without mention of the risks (see paragraph 1b above).
  The DWP approved relaxations in the actuarial calculations underpinning MFR on 15 June 1998 and 2 March 2002 without having due regard to the effect this would have on all classes of DB scheme members should a scheme be wound up. Members of DB schemes were not informed that the weakening of the MFR would have the effect that the security of their benefits would be reduced if their scheme were to be wound up.

Delays on the part of NICO in reconciling the Guaranteed Minimum Pension entitlements in respect of members of wound-up DB schemes have caused these schemes to be in winding-up for much longer than necessary. This has caused financial loss to members of those schemes arising from the additional administrative costs to the scheme and from a reduction in annuity rates during the period of delay.

Remedy sought
The complainants consider that the maladministration they allege has led to injustice, in that, for members of such schemes, they were misled into remaining in their employer’s DB scheme and lost the opportunity to move their pension fund elsewhere. They have received a substantially smaller pension than they had been led to expect, and the compensation scheme established by the Government is insufficient to cover their losses. They seek full financial redress for their loss. They also seek compensation for the distress caused to them and to their families.
Trustees of the schemes consider that they have been prevented from fulfilling their obligations to scheme members and that their professional reputation has suffered as a result. They seek a full explanation and redress for the inconvenience caused to them.

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