Press Release highlighting ABI errors and scaremongering about the cross-party Lifeboat plans to rescue the pension victims
by Dr. Ros Altmann
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FINANCIAL COMPANIES TRYING TO DENY VICTIMS FAIR COMPENSATION
MPs AND PRESS BEING MISLED TO AVOID UNCLAIMED ASSETS INQUIRY
The Association of British Insurers (ABI) and its members are trying to stop Parliament providing a fair settlement to victims of pension scheme wind-ups. The ABI is urging MPs to vote against cross-party Pensions Bill amendments (these are NOT Tory amendments) – already passed by the House of Lords. If passed by the Commons on Tuesday, the amendments would ensure everyone in the Financial Assistance Scheme (FAS) will receive the same pension replacement, on the same terms, as those who qualify for the Pension Protection Fund (PPF). The claim that the amendments would take money out of other people’s pension funds or with-profits policies in order to pay for the increase in FAS benefits is simply not correct.
The extra cost of increasing FAS payments to PPF level is, according to Government’s own figures, around £20million a year on average for the next 50 years. In order to try and mitigate the costs of this compensation to the taxpayer, the amendments will ensure that the Government investigates whether unclaimed assets in financial companies could be used for this purpose. However, they do not specify any particular source of unclaimed assets to be used. It is entirely up to the Government to investigate and see what unclaimed assets it can identify for possible use. The House of Commons explanation of what the amendments will do can be found at this link http://www.publications.parliament.uk/pa/cm200607/cmbills/146/en/2007146en.pdf
and page 5 explains the Government is merely asked:
‘to obtain information about unclaimed assets, to provide this information to the Secretary of State and to administer a scheme to transfer unclaimed assets to the Lifeboat Fund…The specifics about the information to be obtained and provided and the classes of unclaimed assets to which the requirement will apply would be prescribed in regulations’.
There is no mention of taking money out of pension funds or with-profits funds. Perhaps the ABI members have not actually read what the amendments say, but it is vital that the media and MPs are not misled into believing that there is any intention to take money from pensions or life companies. That is not the case. It could all come from banks and building societies or other unclaimed policies, the amendments just call for the Government to find out what unclaimed assets actually exist! However, the insurance companies are so frightened of even being asked to identify what unclaimed assets they hold, that they are using false arguments to interfere with the Parliamentary process. They are irresponsibly misleading MPs into voting against the 125,000 people who lost the pensions which Government said were ‘safe’ and ‘protected by law’.
These victims have suffered enough. It is a pity that financial companies want to deny them a fair settlement in an effort to avoid having to disclose what unclaimed assets they hold! They are so frightened of losing the billions of pounds that they have been holding onto for years that they do not even want anyone to ask them to identify what they have. Other countries have collected unclaimed assets to use for good causes and it is perfectly reasonable for the UK to consider doing the same. The Chancellor has already earmarked £400million of unclaimed assets in banks and building societies, to use for youth projects. I would argue that some of this money should be diverted to increasing the FAS and paying PPF level benefits now. The youngsters who may benefit from this will not die destitute in the next couple of years if those projects are delayed, but some of the pensioners who are struggling without the pensions they were relying on will certainly die in coming months without their pensions.
This scandal has been going on for years and the victims deserve a fair settlement. If the amendments are passed on Tuesday, their fight will be over. The scandal would be resolved and surely it would be in everyone’s interests to do this in order to start restoring confidence in pensions.
Dr. Ros Altmann
15th July 2007
Phone 07799 404747
- The Government set up a Financial Assistance Scheme in 2004, which it claimed would provide help to those worst affected by the loss of their pension. Since then, ten thousand people have reached age 65, some have already tragically died, but only 1,300 people have had a penny of this so-called ‘assistance’. In fact, the FAS is the worst example of political spin. Several extensions to the FAS have not delivered money to those who need it right now. The Lords amendments to the Pensions Bill, which MPs are being asked to approve on Tuesday would ensure that they get their money straight away, with trustees paying.
- The DWP has said that the FAS is providing help to those who need it most urgently, will give all the victims back 80% of their pensions, has cost £8bn and is all the taxpayer can afford. None of this is true.
- Firstly, there are already over ten thousand people in FAS schemes, past pension age, yet only 1300 people have received any money. So 90% of the victims have had nothing at all from the FAS and those who need urgent help – many of whom lost their pensions years ago – are still not receiving it.
- Secondly, rather than billions being spent, the FAS has paid out just over £4million since 2004 (and has cost nearly £10million in administration!).
- Finally, the 80% is not 80% of members’ pensions. The FAS is just based on ‘spin’. In fact, it pays 80% of something called the ‘core pension’ which is not the members’ expected pension at all. This ‘core pension’ was invented for FAS so that it would sound far more generous than it is. This so-called ‘core pension’ takes the pension the members should have received from their scheme and then:
– Deducts all the inflation linking they were promised
– Deducts the tax free lump sum they were promised
– Deducts some revaluation they were promised up to retirement
– Deducts some of their widow’s benefits
– Deducts all other dependent’s benefits
– Deducts their ill-health and early retirement benefits
– Ignores any pension entitlements before May 2004
– Ignores their scheme pension age
Then takes 80% of this lower figure, then deducts 22% tax at source and then pays out only once the scheme has finished winding up! If the scheme has not yet finished winding-up, even if the person is terminally ill, the FAS only pays 60% of this so-called ‘core’.
- In fact, most schemes have not finished winding up yet (i.e. they have not yet bought annuities with the scheme assets) so the 1,300 or so who are receiving FAS payments are only getting 60% of the ‘core pension’.
- In other words, the FAS payments are not paying 80% of members’ pensions, are not nearly as generous as the PPF, they only start at age 65 (even if the member paid to retire at 60) and most of those who need their money have not had anything. Some of these people have already been struggling for years without their pensions, more are dying and becoming gravely ill every month, yet there is no fair resolution in sight for them. Just promises of another review and more help in many years’ time for younger members.
- In contrast, for all schemes in the PPF, everyone past their scheme pension age is already receiving their money.
- The problem is not the trustees, it is not the data, the problem is the way the FAS is set up. If it were set up like the PPF, then trustees could pay members their entitlement as soon as they reach pension age, but at the moment they are not allowed to do this, so the members are left without their money while the bureaucracy and data gathering grinds on. The amendments will ensure that this happens straight away.
- Raising FAS to Pension Protection Fund (PPF) levels is certainly not unaffordable. The government’s own figures calculate that putting all of the scheme members into PPF would cost £640 million in net present value terms. The cost is an average of £20 million per year over the next 50 years. Compare this to the official account of overpayment errors in the DWP budget in 2005-6 (official mistakes, not customer errors or fraud)
DWP official overpayment of benefits in 2005-6
Income support £200m
Housing benefit £150m
Pension credit £130m
Disability living allowance £ 60m
Incapacity benefit £ 50m
Jobseeker’s allowance £ 50m
Council tax benefit £ 40m
State pension £ 30m
Other £ 15m
Total Overpayment Error £725m