Pensions Week article on unfairness of FAS announcements

by Dr. Ros Altmann

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Sadly, the Government’s Financial Assistance Scheme is just the start of what is required to address the huge problem of compensating members of final salary pension schemes who find their years of pension contributions have disappeared.

There are so many dreadful parts to this sorry saga, it is difficult to know which is worst. There are members who are terminally ill, who desperately need their pensions, but cannot get any money. Many have been forced to sell their homes, because they were relying on the pension and can now no longer afford to live. Some could have retired, but were asked to stay on and find that such loyalty has cost them their pension. Even pensioners have suddenly been told that their pensions will be nearly halved. There are those who have suffered heart attacks from the stress, some have died and a few have even taken their own lives in despair. The loss of a pension is a most devastating event.

It is bad enough that members will not receive the pension which they saved for with their own money and their employers’ contributions (their deferred pay). Government material assured them these pensions were safe, without ever mentioning any risk. But there is another element which is perhaps even more outrageous. Many are finding that they will not even get the full amount of what Government called a ‘Guaranteed Minimum Pension’. This part of their pensions was paid for by contracting-out of the state system, into what the members were told were ‘approved’ schemes, which would provide at least this ‘guaranteed minimum’ amount of pension. I do not see how it is acceptable for these GMPs not to be paid in full, with members, if necessary, being put back in the state scheme. It was Government which called these ‘guaranteed minimum pensions’, not employers, trustees, or advisers. If they end up being neither ‘guaranteed’ nor a ‘minimum’, then surely these people must be compensated.

Of course, we do now have the Financial Assistance Scheme (FAS). After enormous media and political pressure, the Treasury agreed to pay £400million over 20 years, to provide ‘assistance’ to some of those affected. However, this is nowhere near enough money to deal with the problem.

The DWP has recently attempted to clarify the situation, announcing that members, who were within 3 years of scheme pension age last May, could get 80% of ‘core’ benefits, up to a cap of £12,000 a year. This sounded rather encouraging as a first step and the Government deserves credit for trying to remove some of the uncertainty blighting these people’s lives, but the sad truth is that, without more money, it cannot be done.

In fact, the recent announcement has left members still fighting and begging for their pensions. Many are angry that crucial restrictions were hidden in the ‘small print’ of the announcement, or have emerged subsequently, which have left them still without clarity and rendering the 80% figure almost meaningless. The original statement omitted many of the vital details. For example, even if scheme pension age is 60, no-one will get any FAS payments until they are 65, which leads one to question what ‘core’ benefits are, if they do not include the pension age. Losing 5 years of pension is an enormous blow. In addition, it has now emerged that no money will be paid to members until their scheme finishes winding-up, which can take years. There will also be no provision for those in ill-health , who desperately need their pensions and members of schemes where the employer is still solvent are excluded – even though they have no means of forcing the employer to pay more. There will be no inflation-linking and no tax free lump sum, which again represents a significant reduction in benefits. Of course, there is no word yet on any help for those who were just over 3 years away from retirement and a £12,000 cap is very low.

The bottom line is that the Treasury needs to release more money and accept its responsibility for proper compensation, not just ‘assistance’. It was Government which promoted and encouraged membership of occupational schemes, Government which was responsible for overseeing the Minimum Funding Requirement and which failed to warn of the risks of wind-ups. It was Government – and even the FSA – which told members their pensions were ‘safe’ and ‘guaranteed’.

I call on the Government to restore members’ GMPs in full and then compensate for the loss of their own scheme pensions on top of this. Having been told for years that no help could be announced, because Government did not want to raise ‘false hope’, it seems that this is exactly what the FAS has done.

If members continue to have to fight for what they were assured was safe and protected by the law, how will people ever trust pensions in future? If Government does not agree to this voluntarily, perhaps the Parliamentary Ombudsman will force their hand. These good people have suffered enough and, after all, justice delayed is justice denied.