Pensions Action Group

Statement by The Rt Hon John Hutton MP, Secretary of State for Work and Pensions
House of Commons
22nd February 2007

Comments on Mr Hutton’s statement by Dr Ros Altmann and Bindman’s solicitor John Halford are shown in Bold Italics.

First, it is important to appreciate the context in which this astonishing statement is made:

* the Government was made aware that people wrongly believed their pensions were safe over a decade ago;
* over a year ago, it was made aware of the Ombudsman’s conclusions, reached after a probing, 2 year investigative process; and
* over six months ago, it was made aware of PASC’s conclusions: that the Ombudsman was right and it was being naive at best and at worst misleading

So it should not come as a surprise to the Government that the Court has agreed with the simple issue at the heart of this case: the public was misled by government information and many suffered an injustice as a direct result. There is no need for time to think carefully about this. No independent body agrees with the Government’s stance. That is because it is untenable, “irrational” and one which “no reasonable minister” could maintain.

Second, there is absolutely no need, or good reason, to await a further court ruling or drag the scheme members through the appeal courts. Even if the Government disagrees with the judge on the issues of legal principle, it can pursue and appeal but nevertheless do the right thing now, out of respect for the Ombudsman, PASC and, frankly, the public: that is to accept it misled scheme members and commit to making arrangements to compensate them for what they have lost. That commitment can - and should - be made today. A Government capable of taking responsibility, manifesting leadership and, most importantly, treating workers with respect would not procrastinate further. Yet this one does.

Third, the government continues with the pretence that FAS addresses the underlying problem, notwithstanding the view of the Ombudsman, PASC and lately the ECJ that it does not. FAS is not compensation or restoration: it is a white elephant from which a few hundred people (out of tens of thousands) have receive a fraction of what they have lost. Its administrative costs are many times what it has actually paid out. FAS does nothing for solvent scheme members; nothing for those more than 15 years form retirement and next to nothing for widows. FAS strikes no kind of balance between the interest of scheme members and anyone else.

With permission Mr Speaker, I would like to make a statement on yesterday’s judgment on the Government’s response to the Ombudsman’s Report concerning the security of final salary occupational pension schemes.

Given the importance of this issue to many Hon Members, I want today to inform the House on the position we have reached - both in the light of this ruling, and the decision last month of the European Court of Justice on the implementation of the Insolvency Directive.

The High Court made five rulings in yesterday’s judgment. I will take each in turn.

The Court’s first ruling was that the Ombudsman was entitled on the evidence available to her to reach the conclusion that official information published on the Minimum Funding Requirement for pension schemes was inaccurate and potentially misleading and therefore amounted to maladministration. The Court particularly criticised the then Government's guide to the 1995 Pensions Act, published in 1996. This, it concluded, gave the clear impression that following enactment of the new law, scheme members could be reassured that their pensions were safe whatever happened.

The Government had, in good faith and acting on proper advice, taken a different view from that of the Ombudsman, on the basis that the leaflets concerned were not a full statement of the law and were for general guidance only. However, we now need to study the Court’s ruling on this matter very carefully. In particular, we need to consider the possible implications across Government of the Court's significant proposition - on which this particular ruling was based - that findings of fact made by the Ombudsman are binding, unless they are flawed, irrational, peripheral or there is fresh evidence.

The Court’s key ruling does not need further study. It is so clear a child could understand it: the Government publicised the benefits of occupational pensions schemes but not the main risk on wind up, so the public were misled. “No reasonable minister” could say otherwise, the Judge said. It was “irrational” for this one to do so. There is nothing hard to understand here. What is apparently hard for Mr Hutton  – but  inexplicably so – is accepting responsibility.

The Court’s second ruling related to the important issue of causation.  The Ombudsman had found that maladministration was a significant contributory factor in the creation of the financial losses suffered by individuals. She went on to argue that everyone who between 1997 and 2004 suffered losses on the winding up of their pension scheme was the victim of injustice because of maladministration.

The Government had argued that this was not well-founded. The Court found in favour of the Government on this point, describing this aspect of the Ombudsman’s Report as being “logically flawed and unreasonable.”

This does not accurately summarise the Ombudsman’s key recommendation and past government practice- not least by the DWP – on providing redress for large scale maladministration. It is correct to say that the Ombudsman did not make findings in relation to each and every individual who had suffered loss on wind up to the effect that all of their losses were caused by maladministration. Yet it is plain from her report injustice – in the forms of a sense of outrage, lost opportunities to make informed choices or to take remedial action, and distress, anxiety and uncertainty – was caused by the government’s maladministration and that this was a significant contributory factor in the creation of the financial losses suffered by individuals. The question is what should be done to address that, given its scale. The answer is not to require each and every affected individual to prove causation in their case: that certainly would waste public money. Rather it is to set up a scheme which provides adequate compensation for all in the affected class, just as the DWP did in the inherited SERPS case, and other government departments have done routinely in similar cases. 

As for the ruling, in fact the judge accepted that in many cases causation could be shown – he commented at para 70 that scheme members who had read the leaflets or relied on the advice of others who had done so clearly had suffered injustice caused by maladministration. This will be most scheme members.

The Court’s third ruling rejected the Ombudsman’s finding that the Government was guilty of maladministration when it made changes to the pension scheme funding rules in 2002. The Court decided that the Ombudsman’s finding was not logically sound.

The judge admitted he had not fully understood the Ombudsman’s reasoning and that she had access to far more evidence than he had, therefore, his conclusion is not as firm as other parts of the judgement, particularly his conclusion that no reasonable Secretary of State could reject the first maladministration finding.  It is open to the claimants or indeed the Ombudsman, to put a clearer perspective to the Appeal court. But in any event, it remains the case that the government took a decision affecting the financial security of tens of thousands on the basis of a two line e mail. There is a political question, as well as a legal one, of whether that can ever be acceptable.

In its fourth ruling, the Court dismissed the claim that the Government’s refusal fully to restore the pension entitlements of all affected scheme members was in breach of the European Convention on Human Rights.

The Court’s fifth and final ruling concluded that I should re-consider the Ombudsman’s recommendation that the Government should consider making arrangements to restore fully the pension losses of the people concerned when their employers became insolvent.

This is NOT just about employers becoming insolvent.  How many times will the Government ignore solvent employer scheme members?  The PASC clearly highlighted this point, but Government keeps ignoring it. The reconsideration of the Ombudsman’s recommendations is the really important part and there is a clear need to do this very urgently.  There is dreadful suffering here.

Mr Speaker, in a clear sign of both the complexity and importance of these matters, both sides have sought and been granted permission to appeal. We have not yet decided the precise grounds for such an appeal. It is absolutely right and proper that we take the time to study this judgment and consider its implications in detail. 

How long does it take to understand that the Government has misled at least some people very seriously and that ‘no reasonable Secretary of State can rationally disagree’ with the Ombudsman’s conclusions of maladministration on the official information?

The judgment of the European Court of Justice in January on the implementation of the Insolvency Directive has an important bearing on the issue of financial redress for those who have lost some or all of their pension entitlement. The decision of the European Court of Justice effectively requires the Government to reconsider whether or not the present arrangements offer sufficient protection for people’s pensions when their employer becomes insolvent. The European Court of Justice has ruled that the system of protection which was in place before 2004 did not comply with the Directive, even taking account of the subsequent introduction of the Financial Assistance Scheme, albeit before its 2006 extension. We are therefore already reviewing the Financial Assistance Scheme with this finding in mind. It is now for the High Court to be asked to decide whether damages for breach of the Directive should be paid, taking account of the steer apparently given by the European Court of Justice that damages may not be payable.

This will take another two or three years and will not cover solvent employer scheme members.

Mr Speaker, the Government has already acted to provide substantial financial assistance to people who have lost pension rights when their employers became insolvent. The Financial Assistance Scheme, supported by £2.3 billions of public money, has been set up precisely for this purpose.

It is not £2.3billion – it is around £750million spread over 50 years and this figure does not take account of tax being paid on the money and benefits not paid to recipients, thus taking the net cost down even lower!

Throughout, we have always sought to ensure those who have suffered the most should receive financial assistance to mitigate their loss.

But they have NOT received this assistance.  Enough of the spin.  Enough of the false promises.  There are thousands of people already past pension age and thousands more coming up to pension age who are not receiving a penny and have no idea when they will!

At the same time, we have sought to strike a balance with the interests of taxpayers who can not be asked to accept responsibility for effectively underwriting the total value of pension savings.

This is not what this case means at all.  Here is a defined group of people who were misled into  believing their pension schemes were properly protected when they were not.  The Government knew they were not, but still told them in its public information, that they were.

In considering the right way forward, we are always prepared to consider practical proposals from all sides of the House.

I can confirm, Mr Speaker, that so as not to add to their financial difficulty, we will meet the costs of the applicants in this case so far - together with any costs associated with our appeal.

Mr Speaker, people who have lost their pension rights in these circumstances have suffered a great deal. My aim will be to return to the House with our conclusions and our proposals for how we should proceed - before the conclusion of proceedings on the Pensions Bill.

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