by Dr. Ros Altmann

(All material on this page is subject to copyright and must not be reproduced without the author's permission.)

The Rt. Hon. Gordon Brown
11 Downing Street
Lopndon Sw1A 2AA                                                                                       22nd  May 2007

Dear Mr. Brown

May I congratulate you on your forthcoming elevation to Prime Minister.  The aims you have set out are admirable and I sincerely hope that there will be policy changes to reflect a new beginning for our country and for Labour.

I am writing to you about the Financial Assistance Scheme and firstly, of course, want to say that the recently announced extensions to the FAS are very welcome to many of the victims – especially those who will come up to retirement in many years time.  However,  I am not sure you are aware that this announcement is still not ensuring that those who needed the most urgent help are being rescued.   I feel it is essential that you understand just how much suffering and misery is still going on.   Reluctantly, I have to keep trying to pressure the Government to understand what is required to end this awful scandal and show compassion for these victims.   Amendments to the Pensions Bill could achieve a lasting, fair settlement and we could all then put this issue behind us and move forward to build confidence in Government and in pensions again.  If the issue is not properly dealt with in this Bill, then the fight will drag on, there will be further humiliation for the Government and further suffering for those who did try to look after themselves and their families, played by the rules and wanted to be responsible citizens.  They have had so many verdicts in their favour and this is the fault of both Labour and Tory Governments, but the Tories have committed now to ending the suffering and have recognised the urgency, whereas so far Labour Ministers have not.  It would be wonderful if, as part of your efforts to establish a break with the past, you could announce amendments to the Pensions Bill next month that would finally deliver what is required.  The cost to the Exchequer, on a year by year basis, is tiny.  All FAS payments are taxed and some will not get means tested benefits so the net cost to taxpayers will be of the order of £20m a year above what you have already committed, but importantly, we need to get the money to those in need now, before more of them die.

There are two big problems with the FAS and if they can be addressed properly now, there will be no more fighting, no more headlines about Government failing to help.  The first one is that FAS is simply not working -  it is not actually delivering much assistance to those in most urgent need right now.  There are already 10,000 people past pension age, but only around 1,000 have had any money at all.  The second problem is that the terms of the FAS fall short of what is required for a just and fair solution.

It could be that you have not been correctly briefed on the true situation surrounding the FAS and, if so, I hope that I can correct your misapprehension.  I say this because, on GMTV last week, you assured Fiona Phillips that the FAS would pay 80% of the expected pension of all those who have lost out and that you had put £8billion into the FAS.  I'm afraid that both these statements are not true.  They could be termed 'political spin' and I know you have said you want to move away from the spin and deal with substance, so I felt it was important for you to know the truth.

The 80% applies to what is called 'core' pension, which is a term invented for the FAS and is not the expected pension at all.  The 'core' pension is not actually 'core' in several respects and my calculations show that, in reality, FAS will give members only about 60% of the pension they paid for and, for those who die early, who are ill, or who had scheme pension age below 60, they will end up losing the majority of their expected pension.  Again, inventing a new term could be described as political 'spin' because it has suggested to MPs that their constituents will be getting 80% of their pension, but in reality they will not.  The costs have also been exaggerated, firstly by using 'cash costs' (again this is a new way of measuring long term spending which seems to have been first used for the FAS) but also because no account is taken of the tax paid and benefits not paid for recipients.

It is because of the shortcomings of the FAS that a cross-party group of MPs tabled amendments to the Pensions Bill which were debated on 18th April.

These amendments were designed to ensure that the FAS is made to work properly and deliver a fair solution to this problem.   There is cross party consensus that the only 'fair' solution would be for these people to receive at least as much as those who qualify for the Pension Protection Fund.  This is still much less than the Parliamentary Ombudsman called for, but I can understand the policy difficulties of paying them more than the PPF, so I believe they would accept such a solution.  However, it is also urgent that the money is paid to them straight away, which is why we need trustees to be allowed to pay from scheme assets, as trustees of PPF schemes do, from the scheme pension age.  Most schemes have sufficient assets to pay benefits to all those already eligible, but they are not permitted to do so.  If the Government can propose its own amendments to the Pensions Bill, calling for PPF level benefits, on the same terms as the PPF itself, to be paid to all those who qualify for the FAS – and also include the schemes which were wound up by a solvent employer – then this issue can finally be put behind us. 

I would be delighted to discuss these issues with you at any time.  All my efforts to help these people have been on a pro bono basis, because I genuinely believe this is a terrible social injustice which we, as a nation, must put right honourably.  I am not trying to make a political point, it is one of morality, integrity and decency, which I am sure you can relate to.  I do hope you will take this opportunity to try to meet up and work out a resolution that will actually deal with this problem once and for all.  Please let me know if you are willing to do so.

With best wishes.

Ros Altmann

FINANCIAL ASSISTANCE SCHEME

MYTH 1:  The Government has put £8,000million into the Financial Assistance Scheme
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.  Of course, the money only needs to be paid on a year by year basis, it is not required all at once.

MYTH 2:  The FAS will pay 80% of members' pensions
The FAS is not paying 80% of the members' expected pension at all, the amount paid out is far less than this.  The 80% is calculated with respect to a newly invented term called 'core' pension.  This is a politically-inspired concept, designed to suggest to MPs that members will get 80% of their actual pension, but the definition of 'core' pension is itself worth much less than the scheme pension.  The differences include the loss of scheme pension age (depriving members of several years of their retirement income entirely), much lower widows' benefits, higher taxation of FAS than scheme benefits and loss of all inflation linking.  The Government has stripped all these away from the members' pension and is then paying them 80% of what is left.

MYTH 3:  The FAS is helping those in most urgent need
This is not true.  There are over 10,000 people already past pension age – by definition they are the ones in most urgent need – but only about 1000 of them have had any money at all from the FAS.  The rest have had nothing.  Many of them are in their late  60's and 70’s now and some are battling cancer while still trying to work.

MYTH 4:  FAS delays are all the trustees’ fault
Trustees have to work within the FAS bureaucracy.  Although the trustees have money in the scheme that could be used to pay all those past pension age, they are not allowed to.  In the Pension Protection Fund, trustees are allowed to pay PPF level benefits to all members as soon as they reach pension age, so nobody has to live without their pension.  FAS trustees are not allowed to do this.

MYTH 5:  Proper compensation is unaffordable
The cost of a decent compensation package is almost a rounding error in the DWP accounts – it is certainly not unaffordable. Topping up FAS payments to PPF levels would require an extra £600m to be set aside now, or around £20m a year.  Official mistakes in benefits calculations cost taxpayers over £700m ayear!  Anyway, scheme assets and unclaimed assets could be used.

MYTH 6:  Taxpayers’ money is the only source
Again this is not true.  Firstly, using scheme assets to pay the pensions out, rather than wasting money on buying annuities would be more sensible and could get money through quicker to those needing it now. There is still over £1billion in pension schemes which have not yet bought any annuities.  This money should be kept so that it can top up FAS payments, but the DWP has just written to trustees urging them to buy the annuities as quickly as possible!  This makes no sense.  Secondly, using unclaimed assets from life and pension companies or other financial sector sources would allow the FAS to be topped up to PPF levels without calls on taxpayers.