Pensions Action Group

Briefing Document for the Lords
Dr Ros Altmann
July 2007

This briefing aims to help Peers understand the need for amendments to the Pensions Bill.  The amendments call for a lifeboat fund to rescue the 125,000 people who lost their company pensions when their final salary scheme wound up between 1997 and 2005.  The media and the victims themselves believe these amendments would provide a fair and realistic end to this scandal and they have wide cross-party support.  They would ensure that the FAS finally delivers the assistance it was set up to provide.  At the moment, the FAS is not working.  Only just over 1,000 people have had any assistance, as the FAS has only paid out about £4m since 2004, while costing taxpayers nearly £10m to administer. 

The Clause 18 amendments, if passed, would allow trustees to pay money to those still struggling without their pensions now – without waiting for FAS bureaucracy.  Members of schemes in the PPF are paid straight away by their trustees.  Maxwell pensioners were rescued within a few weeks.  But those in the FAS have already waited years without any money.

These decent, hard-working people trusted the Government and truly believed, after the Maxwell scandal, that their pensions had been properly protected by new laws.  Sadly, the way those laws were administered has led to over 100,000 of them losing their pensions.  Paying a fair compensation package will not set a dangerous precedent for the future.  This is a defined group of people who have been wronged.  They are the ones who were encouraged, by the Government, to put their whole life savings in one place – their company final salary scheme – on the assurance that these pensions had been properly safeguarded by the new post-1997 regime.  However, in reality, those closest to retirement were actually far less secure after 1997, due to the weakness of the Minimum Funding Requirement, reduction of protection for state pension rights in company schemes and the statutory priority order which prevented trustees from dividing assets fairly on wind-up.   Removal of dividend tax relief hit smaller company schemes hardest in 1997 and many could not recover. The current Pensions Bill aims to encourage people to contribute to pensions in future.  But how can anybody have faith in Government exhortation about pensions if those who trusted it last time are treated so badly? 

This issue is so important that party differences should be set aside to wipe away this blot on Parliament's record.  The Parliamentary Ombudsman, PASC and High Court Judicial Review all say this is Government’s responsibility, but still the Government claims it has done nothing wrong.  This attempt to over-ride our constitutional safeguards for ordinary citizens is completely unprecedented.

The recent extensions to the FAS are not enough and the victims have already had to launch another Judicial Review to prove this.  The Government has already said it would like to find ways to pay the 90% PPF level to all those in FAS.  The extra cost of doing so is around £20m a year, which is just a rounding error in the DWP budget.   The amendments would simply force Ministers to provide a quick and fair solution, instead of waiting for more reviews.  They will include all solvent employer schemes, pay from scheme pension age, allow trustees to pay straight away from scheme assets and encourage Government to find unclaimed assets to mitigate the extra costs to the taxpayer if it wants to.  These amendments represent practical, workable proposals to deliver a fair solution quickly.  The time for reviews and piecemeal changes to the FAS is past.  Action is needed now! 

Please support the Clause 18 amendments to Part 2 of the Pensions Bill, to set up a Lifeboat Fund to rescue all those who lost pensions between 1997 and 2005.


1. FAS is still not actually reaching those in most urgent need
2. FAS pays far less than PPF – much less than 80% of 'expected' scheme pension

1.  FAS is not actually providing assistance – victims need the money now!
The Government has been promising to rescue these people since 2004.  However, of the 10,000 people already past pension age, only around 1,000 have had any money at all and most of them are only getting the so-called 'initial' payments which are 25% below the FAS entitlement and only from age 65.  The FAS will not allow any member to be paid until it has received detailed data which the trustees, in many cases, are simply unable to provide.  As the trustees are not allowed to pay FAS benefits from the scheme assets, members are just left with no money.  It is not much use saying they will receive arrears when all the FAS calculations are finally worked out, since many of them will not be alive by then.  They need the money now.  By contrast, trustees of PPF schemes pay members their full PPF entitlement as soon as they reach scheme pension age.  Maxwell members were also paid as soon as they reached scheme pension age.

The Clause 18 amendments propose allowing trustees to pay immediately from scheme pension age, ensuring people are not left without their pensions any more and do not lose years of the retirement they paid for.  The amendments would encourage Government to use scheme assets, rather than buying annuities, to mitigate costs to taxpayers and fund an emergency 'lifeboat' arrangement to ensure money is paid quickly, as was done with Maxwell.  Unclaimed assets can then be collected, if the Government wants, in order to help fund this.

2.  80% is not 80% 
The FAS does not pay 80% of members' expected scheme pensions.   The 80% refers to a newly invented term called 'core' pension, worth much less than scheme pensions.  The Government has simply stripped away important parts of members' expected pension to present a politically palatable scheme.  FAS will actually pay about 60% of expected pension for most, only 30% for some, and far less than the PPF (which pays up to 90% with some inflation-linking).  The FAS version of the members'  "core" pension excludes:
i. Scheme pension age - this is not considered 'core'!  There are many schemes where pension age was 60 or 62 (such as ASW and Dexion) but the FAS does not start paying until members reach age 65.  Even women whose pension age is 60 receive nothing from FAS until 65.  By contrast, the PPF pays from the scheme pension age.
ii. Tax free lump sum.  Up to a quarter of the scheme pension (and PPF benefits) can be taken as a tax free lump sum, but FAS does not allow this.  As all FAS payments are fully taxable, FAS benefits are taxed more highly than scheme pensions or PPF. 
iii. Widows' benefits are far worse in the FAS than they would be in the scheme or the PPF.  Final salary pensions include a five-year guarantee, but the FAS does not. 
iv. All inflation-linking.  FAS does not pay any inflation-linking at all.  The PPF retains some inflation protection, but FAS payments decline in real terms every year, thus further reducing their real value below the expected scheme pension. The members' expected scheme pensions would have been at least partially inflation-protected. 

The Pensions Bill Clause 18 amendments call for FAS to pay the PPF level of benefit from scheme pension age and retaining some inflation-linking.  There is consensus that nothing less can be a fair solution.  The Government will surely have to pay this in the end anyway, but why not just force a solution on reluctant Ministers now, instead of waiting for more Judicial Reviews, more suffering and more deaths.  These amendments would deliver and fair solution that would signal the end of this fight for justice.


The FAS is helping those in most urgent need
This is simply not true.  There are already over 10,000 people past pension age – by definition they are the ones in most urgent need – but only about 1,000 of them have had any money at all from the FAS.  The rest have had nothing.  Many are now in their late  60's or 70’s, some battling cancer while still trying to work under terrible stress.  The DWP is also deducting money from these people's state pension, because their schemes were contracted out, but many are not even receiving the full Guaranteed Minimum Pension (GMP) from their scheme. They would have been better off never joining at all.  Maxwell's pensioners had their state pensions fully restored by the Government straight away.  In this scandal, people have been living without even their full state pension for years.

The FAS will pay 80% of members' expected pensions
The amount paid out is far less than this.  The 80% is political spin.  The DWP has invented a new term called 'core' pension for the FAS.  This concept seems designed to suggest that members will get 80% of their actual pension, but the so-called 'core' pension is much less than their scheme pension.  For example, FAS only pays from 65, not scheme pension age, so members lose several years of their retirement income entirely; there is no inflation-linking; much lower widows' benefits; much higher taxation of FAS than scheme benefits.  80% of FAS 'core' expected pension is about 60% of their scheme pension for many and only 30% for some – especially widows.

The Government has put £8billion into the FAS
The reality is that the FAS has paid out just £4million since 2004 and has cost taxpayers nearly £10million to administer.  The £8,000million (£8billion) is a statistically invalid ‘cash’ cost, worth just £1.9billion in real terms.  And this will be reduced by tax paid on FAS and by means tested benefits not paid out.  Furthermore, the money only needs to be paid on a year by year basis, so the extra annual sums required are about £20million.

FAS delays are all the trustees’ fault
No, the delays are due to the way the FAS has been designed.  Although the trustees have money in the schemes that could pay all those past pension age, the FAS does not allow them to.  In the PPF, trustees pay benefits as soon as each member reaches scheme pension age, so nobody lives without their pension.  FAS trustees cannot do this.

Taxpayers cannot 'afford' to increase FAS to PPF levels
Changing FAS payments to PPF levels would require around an extra around £20m a year for 60 years.  Official mistakes in benefits calculations cost taxpayers over £700m a year!  This is certainly not 'unaffordable' in the context of public spending and anyway, scheme assets and unclaimed assets could be used in order to further mitigate the costs. 

The Government has set up a Review to look at ways of increasing FAS, so just wait!
The review will not report until end 2007.  In the meantime, the Government needs to commit to paying compensation at the PPF level that everyone already agrees is fair, rather than making the victims wait for yet another review.  Many lost their pensions years ago.  The Parliamentary Ombudsman, PASC and High Court verdicts were all in their favour, yet still the Government is resisting.  The House of Lords has an opportunity to put this right.  There is a chance to end this scandal once and for all, before more people die waiting for their pensions to be restored by a Government which promised they were safe.


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