Paper presented on behalf of pension wind-up victims at meeting with John Hutton
by Dr. Ros Altmann
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In last year’s IPPR speech on risk and the compensation culture the Prime Minister said:
‘Government has a responsibility to inform properly and not over-claim’.
In this case, the Government did not inform members properly, and it certainly over-claimed about the security of these pensions. The Prime Minister also said:
‘We must act to ensure that valid cases are compensated quickly’.
Government has not acted quickly to compensate and the FAS payments are taking far too long to be paid out.
- Please explain why the FAS rules have been designed so unfairly
The Government claims the FAS is designed to deliver help to those who need it most. This is not happening and many in urgent need have been excluded. For example:
John age 58 Terry age 62
Scheme pension age 60 Scheme pension age 65
Should have retired in 2007 Will be 65 in 2008
Will not get FAS help till 2012 Does not qualify for any FAS money!
- Why are the schemes buying bulk annuities?
If these schemes are run on, they have plenty of assets to pay all pensions for several years. These people’s money is sitting in a bank, they desperately need it, but the FAS rules mean they cannot have their money they paid in. The PPF will not be buying annuities, so why should these schemes do so? Furthermore, annuity rates have fallen dramatically, so members will get even less of their pensions than previously thought.
- Why are solvent employer schemes excluded?
How can solvent employer scheme members actually force their employer to pay their pensions? The employer complied with the law, which was governed by the totally inadequate MFR. It is misleading to say that the employers have a moral obligation to pay the pensions, when there is nothing members can do to force them to pay.
- Why are interim payments only 60% and why does FAS not pay out below £10 a week?
To reduce a terminally ill person’s assistance to 60% is callous. If the schemes did not buy annuities, members’ full pensions could be paid immediately. Indeed, they could have been receiving them for the last few years.
- How did the Government arrive at the 15,000 estimate for FAS eligibility? What is the latest estimate?
We believe far less than15,000 people will be helped by the FAS. Most schemes we know of have only a few members who qualify. In addition, even though only a few members of each scheme will get FAS help, all the members of the schemes are having to pay for the trustees’ time in filling out the FAS registration forms. Therefore all other members will end up with even lower pensions as a result of the FAS help for a few. This is grossly unfair.
- Why is there no specific recognition of the loss of GMP? How can the Inland Revenue insist on including AVCs in the deemed buyback calculations?
State contracted out rights should be fully reinstated into the National Insurance scheme and members’ AVCs should not be confiscated.
The cost of a proper compensation scheme:
This would cost around £100million pa for 40 years or so, which could be budgeted into future DWP expenditure, while paying out all pension entitlements now, using scheme assets.
SUMMARY OF FAS INADEQUACIES:
- Scheme assets should not be wasted on buying increasingly expensive annuities
- Proper provision should be made immediately for those who are already over pension age, in very poor health, from scheme assets
- FAS entitlements of under £10 per week should still be paid – especially for interim payments
- The cut-off point of 3 years from scheme pension age in May 2004 is unjust
- It was cruel to announce that those within 3 years of scheme pension age will be helped, giving them some hope, but then making them wait till age 65 and conclusion of wind up!
- £400million is nowhere near enough money – £100m a year for 40 years should be included in the long-term DWP budgets
- Members of schemes winding-up with solvent employers must be included
- Paying only 80% of core pension is not sufficient to remedy the injustices. It is unreasonable to have no indexation and a £12,000 pa cap
- There should be provision for a tax free lump sum
- There should be explicit recognition of loss of the ‘Guaranteed’ Minimum Pensions which were supposed to replace National Insurance contracted out rights
Those affected need a quick remedy, to remove the dreadful uncertainty hanging over their lives. Waiting for a review in 2007-8 is not acceptable. If trustees are permitted to pay out the pensions from existing scheme assets, members could receive payments immediately in most cases. Forcing them to wait until age 65 and until their scheme wind-up is finished, is prolonging their suffering. Justice delayed, is justice denied!
The FAS could be run as a subsidiary of the PPF, pooling scheme assets, rather than wasting the money on buying annuities. Government can contribute into a separate arm of the PPF, to ensure pensions can be paid,
The loss of ‘Guaranteed Minimum Pensions’ must be addressed. Members were told that their contracted out rights would deliver a ‘guaranteed’ pension, without warning of any risks. The Government failed to put in adequate protection for state scheme rights and these GMP entitlements should be taken back into the state scheme and included in the National Insurance pension at pension age. The Inland Revenue is planning to confiscate members’ AVC’s if they choose deemed buyback. This is outrageous, but they cannot afford to challenge this grossly unfair decision.
It is Government’s responsibility to pay compensation, not just assistance. If Governements make mistakes, then taxpayers have to compensate. Half-hearted attempts to help some members, somewhat, are merely prolonging these people’s agony. How can we ever hope to restore confidence in pensions, if this issue is left unresolved, dragging on for more years?
If New Labour really cares about social justice and encouraging people to take personal responsibility for their lives, this dreadful situation must be properly resolved.