Financial Adviser ‘Time to Listen to Some Reason’
by Dr. Ros Altmann
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On 7th February 2008, the Government suffered yet another defeat over its treatment of 125,000 workers who lost their supposedly safe final salary company pensions when their employers’ schemes were wound up. Three Court of Appeal judges dismissed the Secretary of State’s appeal and upheld the High Court Judicial Review ruling against the Government.
This verdict confirmed, yet again, that the Government provided false reassurances which convinced everyone that final salary pension schemes were completely safe. This effectively resulted in official ‘mis-selling’ of final salary pensions, as workers were encouraged to contribute to schemes they were assured were properly protected by law, when in fact the Government’s own rules meant there was no real safety at all. In the private sector, such behaviour – encouraging people to invest in a product and telling them it is completely safe – would result in full compensation for any losses. Indeed, many financial advisers were fined heavily for failing to treat final salary pensions as ‘guaranteed’.
However, the Government apparently operates under very different rules from the rest of us. It has consistently insisted it did nothing wrong and just dismissed every verdict that went against it.
Two years ago, the Parliamentary Ombudsman found the Government guilty of maladministration and recommended full compensation for financial losses plus consolatory payments for distress suffered by the pension scheme members when they found out their pensions were only as secure as the sponsoring employers’ commitment.
Then, the Parliamentary Public Administration Committee, High Court Judicial Review verdicts and the European Court of Justice, all found that the Government was responsible for what happened. But still they refused to accept it and despite promises of ‘assistance’ most of the victims received no money. Years have gone by, many have already died. What a disgrace.
This latest verdict is even stronger than last year’s High Court ruling. The three Appeal Court judges not only confirmed that the Secretary of State’s rejection of the Parliamentary Ombudsman’s findings was irrational and unlawful, but also ruled he must accept his Department caused injustices which go beyond just financial losses. The Government’s maladministration also led to a sense of outrage, distress, anxiety, lost opportunities to make informed choices and denied workers any chance to take remedial action to protect their pensions.
The judges were brutally critical of the Government’s case. They highlighted that the Secretary of State had not even bothered to respond to the Parliamentary Ombudsman’s specific criticisms that workers were misled by ‘assurances which it was never the Government’s intention to meet’. They said it is ‘a striking feature…that the Secretary of State has not, even in this Court, sought to meet the Ombudsman’s finding that the assurances …were incompatible with the Government’s intention’. They concluded, ‘it was irrational for the Secretary of State to reject the Ombudsman’s finding’. Pretty strong stuff, yet astonishingly, rather than finally owning up to its failings, the DWP sought leave to appeal to the House of Lords! What a waste of taxpayers’ money. Every single independent assessment of this case has gone against the Government. How many verdicts will it take to make Ministers see sense?
The Government’s argument is that Ministers are perfectly entitled to reject their own Ombudsman’s findings if they ‘do not agree’ with them, and even without ‘cogent’ reasons for disagreeing! In this particular case, a Minister who was not there at the time, who admitted he had not even fully read the Ombudsman’s report, and who has not objectively investigated all the evidence, still wants to be entitled to prefer his own view over that of the independent adjudicator established by Parliament to protect citizens from Government wrongdoing – without even having to provide rational reasons. This suggests that politicians think they should be above having to explain themselves properly, even when rejecting their own Ombudsman’s rulings. Can you imagine a financial company behaving like this in the face of such damning verdicts by the FSA or FOS?
Despite Peter Hain’s welcome pre-Christmas announcement which promised to increase the Financial Assistance Scheme (FAS) payments to the Pension Protection Fund level for all victims, the money is not yet coming through because the legislation and regulations are not yet in place. There is much work to be done in ensuring that all those who should be paid will actually start receiving their money. Instead of officials mounting a challenge against these legal verdicts and denying any wrongdoing, they should be working on speeding up the resolution of the problems that they caused!
In any case, having already offered fair treatment to most of the victims, why does the Government still refuse to admit it did anything wrong? The FAS payments are only classed as ‘assistance’ not ‘compensation’, and there is no remedy for the non-financial injustices. At the very least it would mean a great deal to many of the victims to receive an apology from the Government for causing such distress and anxiety to these innocent citizens, many of whom have become very ill as a result of first losing their pension and then fighting to have it restored.
For the past few years, the Government has tried, unsuccessfully, to wear the victims down and even tried to bully them into submission, by threatening to bankrupt them if they lost the Judicial Review. But this case should never have had to go to Court in the first place.
The Court of Appeal immediately refused to grant the Government leave to Appeal, but the DWP is now considering appealing directly to the Lords. This scandal really needs to end now, rather than being prolonged with more legal wrangling. The most important thing is that these people should finally get their lives back and enjoy what is left of their retirement. An apology and speedy payments from the FAS are what is urgently required. Let’s hope they are soon forthcoming.
We need the Secretary of State to face up to his responsibilities and apologise to these victims of official ‘mis-selling’ of private pensions, while also ensuring that the Government does not make the same mistakes in future. The Government should not be allowed to bully its way out of its responsibilities, as it has tried to do for years in this case. We all know that the Parliamentary Ombudsman’s next big report will be on Equitable Life, so the precedents from this case are ominous.
And what about the implications for the new proposed personal pension accounts in future? If there are significant risks that people may lose much or all of any pension savings because of means-testing in the pension credit calculations, as will potentially be the case for hundreds of thousands of personal account contributors, the Government must make sure they are told. They should be warned of the risks before being automatically enrolled into a pension. If they are prevented from making properly informed choices for their own future, this case could come back to haunt us all.
Government must adopt the standards it sets for others and be fair and honest with citizens. Financial advisers are used to such rules. It’s about time politicians shared the same approach.