Why extension to FAS is spin, not reality
by Dr. Ros Altmann
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The recent ‘extension’ of the FAS is a public relations exercise, trying to claim that people will be significantly helped, when this is not the case.
The Statement laid in Parliament on 7th June, in which the Government attempts to explain why it thinks it did not produce misleading information for the public has, ironically, itself misled Parliament! It claims that eligibility for FAS help ‘has now been extended to people within fifteen years of their scheme pension age. This involves tapers from 80 per cent of expected pension for those within 7 years of their scheme pension age, 65 per cent if between 7 and 11 years, and 50 per cent for those between 12 and 15 years.’
This is misleading and untrue. The FAS pays nothing like 80% of ‘expected pension’.
The ‘expected pension’ includes
- index-linking (FAS benefits are not uprated at all, so the real value will halve over 25 years or so)
- is not capped at £12,000 (and this cap is, itself, not indexed, so by the time people 15 years from scheme pension age actually become entitled to ‘assistance’, the real value of this cap will be more like £8,000)
- is paid from scheme pension age, whereas the FAS benefit is paid only from age 65 (many members lose an entire 5 years’ worth of expected pension),
- includes a tax-free lump sum, ill-health cover, life assurance cover, 5 year guarantees, etc.
All of these elements form part of the ‘expected pensions’ that people were relying on, and which Government assured them were safe, but are excluded from the FAS.
In truth, people in the FAS 80% band will, therefore, actually be getting more like 50-60% of their ‘expected pension’ and many will be getting 10% or less! Those in the 65% band will mostly receive 40-45% or less and anyone in the 50% bracket will probably end up receiving only a quarter to a third of their actual expected pension. Of course, those over 15 years away from scheme pension age will get nothing and many of them saved for 25 years or more in their company scheme.
- All members who do not qualify for FAS will receive even lower pensions
- No recognition of loss of state pension rights
- Insisting on annuity purchase causes delay and reduces pensions unnecessarily
- Arbitrary cut-off points are unfair and still exclude people with over 25 years service
- Exclusion of solvent employer schemes is unjust
- Making people wait until age 65, and wind-up is complete, is unjust
- The FAS does not differentiate between contracted out pensions and scheme pension. The loss of the ‘Guaranteed’ Minimum Pensions which were supposed to replace National Insurance contracted out rights is a real scandal. How can it be right that the ‘guaranteed minimum pension’ is not actually guaranteed? Before 1997, all scheme members were taken back into the state system and there was no need for complex considerations of ‘deemed buyback’ (in which the Inland Revenue is also trying to confiscate members AVCs!) or buying complex annuities to cover the GMP benefit profiles. If the SERPS/S2P rights were taken back into the National Insurance scheme, the process of winding up would be far quicker, the members would at least get their full state pension, and then maybe the FAS could pay out on the basis of the scheme pension alone – not the contracted out pension.
- Scheme assets should not be wasted on buying increasingly expensive annuities – this leaves far less pension for most members than they should have and the process of buying the annuities and agreeing all entitlements ends up delaying help for members coming up to retirement age. Proper provision should be made immediately for those who are already over pension age, in very poor health, from scheme assets. Most schemes could still be paying pensions to those coming up to retirement or terminally ill, but the assets are sitting in a bank waiting to be used for annuity purchase on final wind-up (which takes years and which is one of the reasons why so few people have received money).
- The cut-off points are unjust. There are people who are just a few months outside the 15 year cut-off who have 25 or more years of contributions to their scheme. How is it right to leave them out?
- Making people wait till age 65 and conclusion of wind up is unfair, especially after the deal to ensure public sector workers retain their age 60 retirement age well into the future!
- Members of schemes winding-up with solvent employers must be included. Solvent employers could simply choose to wind-up their pension scheme and all they were legally obliged to pay was the MFR level, even if they could afford more. When making decisions about where to set the level of the MFR, the issue of solvent employer wind-ups was not even considered. This is part of the reason why the decision to weaken the MFR – especially in 2002 – was maladministrative, because it did not consider all the relevant factors it should have looked at, most particularly the situation of wind-up.
- In order to provide information to the FAS, trustees are incurring often significant expenses, which must be paid from scheme assets. This will mean anyone excluded from the FAS will obviously be losing even more pension than if the FAS did not exist. In other words, the Government is taking more pension away from people who are further from retirement!
Those affected need a quick remedy, to remove the dreadful uncertainty hanging over their lives. Waiting for payments has been another injustice for them. If trustees were permitted to pay out the pensions from existing scheme assets, members could have been receiving 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 Financial Assistance Scheme is far more spin than substance, has cost far too much taxpayers’ money to set up, with little help going to those in need. How can we ever hope to restore confidence in pensions, if this issue is left unresolved, dragging on for more years? The time has surely come for MPs to listen to their constituents and listen to their own conscience, to insist that Government deals properly with this issue.
No more ‘spin’, but properly giving people back the lives which the law and Government carelessness have taken away from them.