Money Marketing feature on ‘The Muddled Maths’ of the Chancellor on FAS

by Dr. Ros Altmann

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GOVERNMENT MATHS:  £8BILLION IS REALLY £1.2BILLION (shhhhh…don’t tell anyone)

According to a private briefing from John Hutton to the Parliamentary Labour Party, the £8bn newly extended Financial Assistance Scheme (FAS) is actually worth just £1.9bn in real terms (net present value).  As tax is payable on the FAS and people getting FAS will not get means-tested benefits, the net cost is even lower - probably closer to £1.2bn, to pay pensions for the next 60 years to those who have lost out. 

In line with every previous announcement on the FAS, the reality is so different from the rhetoric.  How long will the Chancellor insist on playing games with this issue and leaving people who saved all their lives still begging and fighting for justice?  He needs to demonstrate his qualities of leadership, compassion and integrity to sort this scandal out properly.  The extra cost of a fair settlement is tiny, yet the agony goes on.

Mr. Hutton says the FAS extension reflects the Government’s defeat in the recent High Court Judicial Review.  He seems to have misunderstood the ruling.  The changes announced in the Budget do not reflect the fact that the Government is responsible for what has happened, this is still just an ‘assistance’ scheme, rather than pension restoration.  In fact, the latest measures do not benefit any of the claimants in the Judicial Review, nor any of the representative complainants from the Parliamentary Ombudsman’s report.  Raising the cap to £26,000 a year, removing the £10 de minimis and including in future all those who have lost out, regardless of their age are all, of course very welcome.   However, almost all the people struggling without their pensions for the past few years are no better off today than they were when the High Court judge delivered his verdict!  Their suffering goes on.

So what’s wrong with the FAS, even after the Budget announcement?  Firstly, we already know the scheme is not working.  It has not delivered any money to 90% of those who are already supposed to be receiving it.  Secondly, members of solvent employer schemes are still excluded, even though they have suffered the same injustice as others.  Thirdly, the FAS still only pays from age 65, but people who should have retired at age 60 are losing five whole years of the retirement they paid for and many are too ill to work.  Also, the FAS pays no inflation-linking, no tax free lump sum and far less generous widow’s benefits than members would have had from their schemes.

There is political consensus around paying all those who have lost their pensions at least the Pension Protection Fund (PPF) level of benefits (i.e. close to 90% of their pension at retirement, with at least some inflation linking) and there are amendments to the Pensions Bill calling for this to be paid.  The extra cost of increasing the inadequate FAS to PPF levels is not large.  John Hutton’s leaked briefing shows that to pay Pension Protection Fund level benefits to all the victims would cost just £2.5bn today - compared with the £1.9bn already earmarked for the FAS.  In other words, to sort this out in a fair manner would cost just an extra £0.6bn (or £600m).  This would be all that is required to provide pensions for over 60 years.  The net amount would be even less because the gross figure should be adjusted for tax and benefits. 

Why hold back this last bit of funding when we are so close to a solution?   This amount would be hardly noticeable in the Government’s budget.  In fact, DWP officials overpaid £725million in benefits to people not entitled to them last year - and these official errors can never be recovered.  So, in just one year, official mistakes in our hugely complex benefit system cost taxpayers more than the extra that is needed to restore pensions for the next 60 years extra and finally end the biggest scandal in UK pensions history.

And there are other sources of funding for the FAS which Government could organize, without even using taxpayers’ money in future.  There are assets available in the failed pension funds themselves, which could be used to pay pensions immediately, rather than making people wait for years until scheme wind-up is complete and wasting the money on buying annuities.  These assets should be pooled to establish a Pension Restoration Fund to be administered by the PPF but funded by top-ups from Government.  Only the Government can organise this. 

Ministers must admit maladministration, commit to finding the extra money to bring the FAS payouts to at least PPF levels and allow the victims to get on with their lives.  If not, MPs will defeat the Government via amendments to the Pensions Bill to force a settlement.
The Chancellor could have shown true leadership in the budget by apologizing for the suffering and taking responsibility for sorting the issue out properly.  Sadly, he did not rise to the occasion.

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