Letter to Professional Pensions calling on Government compensate victims of scheme wind-ups
by Dr. Ros Altmann
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Your excellent leader (16 Feb) highlights so well the dilemma that has faced UK pensions for years. It has been a feature of Government policy to encourage private pensions in order to justify extremely low state pension spending. Government told the public that people have an obligation to save if they can and assured everyone that final salary schemes were safe and protected by law. Official materials told members that their money was safe in company defined benefit schemes and deliberately failed to warn of wind-up risks. Presumably, Government did not want to frighten people by telling them their pensions might not really be safe, because the overwhelming majority of final salary schemes did not wind-up. If it was in the public interest – for the good of the majority – not to be honest, then compensation must be paid to the minority who did in fact suffer from the absence of protection that they were wrongly assured was in place. The Government can’t have it both ways. It has clearly stated, on numerous occasions, that people will only save in pensions if they have confidence in the system. The scandal of those who saved for decades and trusted official assurances which proved to be wrong will continue to undermine pensions until full compensation is paid. As you so rightly point out, this situation is no different from the mis-selling of personal pensions for which the private sector was forced to pay billions in compensation. In fact, the irony for many is that, after being advised to transfer out of their company scheme into a personal pension, the Regulator insisted that a condition of accepting the compensation was that they must transfer back into their old scheme. Subsequently, that company failed and they have lost their pension and their compensation. They would, in fact, have been better off staying in the personal pension. Even the Regulator endorsed the notion that these final salary pensions were ‘guaranteed’. What hope did ordinary members have of knowing the truth? Victims of such official ‘mis-selling’ must be compensated properly, if we ever want to restore confidence in UK pensions again.
Government attempts to deny responsibility for delays in FAS payments to victims of scheme wind-ups are extremely worrying. Given the way the FAS has been set up it is inevitable that payments would take so long. There are so many things wrong with the FAS it is difficult to know where to start. The registration process has caused unnecessary delays. Trustees were asked to register their schemes in 2004 but the FAS then insisted that trustees had to re-send the information in September 2005. Also, rather than taking in scheme details and member data simultaneously, the FAS will only take member data after it has approved the scheme data – another delay. Payouts will not start until scheme wind-up is complete and the FAS insists on schemes buying bulk annuities and then topping up the pensions for the few who qualify in the 3-year from pension age ‘window’. This is the slowest and most expensive way of operating and will mean that members get the lowest possible pension. Indeed, the existence of the FAS will result in all those who are not eligible having even smaller pensions than they would in the absence of this ‘assistance’ scheme. Since only a few members in each scheme actually qualify, the FAS is making the situation worse for the majority of the 85,000 people who have lost their pensions! If the Government genuinely wants to help those who need it most urgently, why are they not asking trustees to immediately start paying the 80% FAS level of benefit to all those who are over age 65 and terminally ill? Almost all schemes have not yet finished winding up, so the members’ money is sitting in a bank waiting to be given to Legal and General or the Prudential when the bulk annuities are bought. But, in the meantime, members could be receiving their pensions and trustees could claim back from the FAS later. The DWPs refusal to allow trustees to pay pensions immediately from scheme assets and, indeed, the insistence on purchasing annuities rather than running the funds on, suggests that they do not really care about those who need most urgent help. Empty words will not restore confidence in pensions.
Secondly, the rationale for excluding solvent schemes has never been explained properly, since the Government’s argument that solvent employers have a moral obligation to pay pensions is totally unenforceable. The MFR legislation is responsible for solvent employers being able to walk away from their obligations totally legally. Thirdly, the decision only to cover those within 3 years of scheme pension age, but then making them wait till age 65 and scheme wind-up, even if scheme pension age was 60, is inequitable. One member who is now 58 qualifies, but will get nothing until 2013, but another member who is now 62 is excluded even though he will be 65 in 2008. A £12,000 cap and no inflation-linking are other examples of unfairness, but the worst example is the ‘interim’ payments of only 60% rather than 80%. Those who are terminally ill (defined as having less than 6 months to live) are being cut back to 60% and, if topping up to this 60% level implies receiving less than £10 per week, they will receive nothing at all. By definition, these people will never get their 80%, yet their money is currently probably sitting in a bank and trustees could pay them the full 80% (or even 100%) of their entitlement immediately if the DWP were to agree to allow this.