Comments on official figures estimating numbers affected by scheme wind-ups

by Dr. Ros Altmann

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The Government's paper is interesting. It seems to suggest that there is a total of at least 65,000 people who have lost some or all of their pension, who may be eligible for some kind of financial assistance from the new scheme.

The research is based on estimates from independent trustees and from the OPRA Pension Schemes Registry and has detailed data from about 250 schemes, which are mainly those with over 500 members, plus DWP’s own ‘estimates’ of .numbers of people in smaller schemes.

The DWP figure excludes the following groups of people:

  1. All pensioner members are excluded - on the assumption that the scheme assets will be sufficient to buy out all the pensioners in full. This is not actually the case.
  2. Members of schemes where the employer was solvent when wind up began are all excluded.
  3. Members of schemes which started winding up before April 1997 are all excluded.
  4. The Government has also excluded an assumed 10,000 people on the grounds that these have lost less than £5 per week pension and that these people will also not be eligible for any assistance.

So the 75,000 is reduced by 10,000 to give the final number in their table of 65,000 people potentially claiming from this Assistance scheme. Of these 65,000 people, the paper suggests that 35,000 will have lost over half their pension and the implication is that it is these 35,000 on whom most of the Government money will be spent.

The statement accompanying the DWP figures makes it clear that the Government is still looking for more money from the 'industry' to add to the amount the Treasury has set aside and they obviously know that the amount of Government money will not be enough to give meaningful assistance to all these people.

The DWP also say that the level of assistance will be less than the PPF level of benefits (ie. below 90% of pension and possible well below this, depending on how things work out!)

The figures are based on an analysis of about 250 schemes (almost all of these with over 500 members). These larger schemes would, in most cases, have been better funded than the many hundreds of smaller schemes which have also failed. The Government has included ‘estimates’ of these smaller schemes, but has not really analysed them yet. My experience shows that these smaller schemes were often particularly poorly funded, since small businesses were less likely to keep up their contributions and therefore I would expect that a higher proportion of these members will have lost well over half their pension.

Conclusions:

There is not nearly enough money to compensate people for their losses properly.
Government will try and exclude as many as possible from the assistance.
The fund will not pay anything like full pensions and certainly less than the PPF level.
Further analysis is likely to reveal the amount of losses and I would expect it to be larger than the numbers suggested so far.
Several groups are excluded, including solvent employer schemes and those losing less than £5 per week pension (for a 60 year old man, it would cost over £7,000 to buy an annuity giving an income of £5 a week).
My initial 'back of the envelope' calculations have proved to be in the right ball park, but on the low side, which is interesting. Although the number of people is in the right area, the sum of money set aside is nowhere near enough!

Appendix:
Explanation of the confusing DWP table:
Column headings:
The headings on the table are rather confusing. I think the columns should be labelled to show that each one includes the previous column’s total. So, for example, the last column headed 'members facing losses of 20% of expected pensions or more, will include anyone with losing more than 30%, 40% or 50% too. So, in the top row, reading across, 9,000 have lost more than 50% and the next column shows 14,000 who have lost over 40%, which includes the 9,000 from the first column, so the extra number who have lost between 40%-50% is 14,000 less 9,000 and so on across the top.
Penultimate row and bottom row:
To get from the second last row to the bottom row, the DWP have assumed that a certain proportion of members will have lost less than £5 per week pension, so they exclude these people. The final figure of 65,000 assumes that 10,000 people have lost less than £5 per week pension so this 10,000 number is deducted from the 75,000 to leave 65,000 people.
Row f, column 1 suggests that 40,000 people have lost more than half their pension. To get to Row g, column 1, the Government has taken off 5,000 people who they assume have lost less than £5 per week. This leaves the figure of 35,000.


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