Compensation is Urgent – Pensions Week
by Dr. Ros Altmann
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The scandal of disappearing pensions continues. Almost every week, another scheme fails, with those not yet retired suddenly finding their future security destroyed. The unions (ISTC, Amicus) and Plaid Cymru are funding legal challenges claiming that the Government has not protected pension rights on insolvency. I am convinced that the Government will lose in Court, but I would hate to see it get that far. The costs of court proceedings, the damage to confidence in pensions and the Government would do immense harm.
Government has responsibility for this situation for many reasons. Changes made to pensions law in 1997 are very much to blame. After Maxwell, the 1995 Pensions Act measures (effective from 1997) were designed to improve pension protection. The Government claimed that the MFR would ensure good funding, pension rights were protected better, member nominated trustees would look after members’ interests and so on. In addition, the Act introduced the priority order which requires all assets to be used first to pay pensioners’ full index linked pensions (i.e. buying index-linked annuities) before non-retired members receive anything. Why the Government should interfere with normal trustee discretion and scheme rules is hard to understand. There was also one final salary schemes what would happen to their pension promises on insolvency was dropped. So, at the same time as the law was radically reducing the security of non-retired scheme members, the requirement to tell them about this was removed!
This is a fundamental and major injustice. The law allows employers to claim their ‘guaranteed’ pensions are secure. Any other financial investment, which carries the risk of loss, must have a risk warning. Members had no way of knowing that their pension depended on the continued solvency of their employer.
Compensation for this ‘social accident’ is essential. It is morally indefensible to leave these people without the pensions they have paid for. The law has effectively taken their contributions away from them (and any funds they transferred in from other schemes) to pay pensions to other people. Directors who took early retirement at age 50 get millions from the fund, but workers who contributed loyally for 40 years, one week away from retirement, get nothing. Those affected feel they have been robbed – it is easy to see why. They did everything society asked of them and never wanted to live on State handouts. The effect on their lives is devastating.
I am proposing a scheme to help the Government right this dreadful wrong. We should stop the winding up processes and use each scheme’s funds to pay all pension liabilities as they become due over time. We could pool the assets of all affected schemes, to reduce administration and investment costs. There is enough money to fund all pensions for 5-10 years, before the taxpayer needs to contribute anything. For example, ASW Sheerness has £71million of assets and the annual pension bill is only £1.8milion.
This compensation would apply to all schemes of insolvent employers which started winding up since 1997. By not buying annuities, the assets can fund ongoing payments for several years while Government sets aside funds for compensation in the future. My estimates suggest this should cost under £100million a year – which is peanuts compared to the amounts spent on pensions tax relief, compensation for farmers or even the IVF lottery!