MP Briefing on cross party Lifeboat amendments - Ros Altmann

    Ros is a leading authority on later life issues, including pensions,
    social care and retirement policy. Numerous major awards have recognised
    her work to demystify finance and make pensions work better for people.
    She was the UK Pensions Minister from 2015 – 16 and is a member
    of the House of Lords where she sits as Baroness Altmann of Tottenham.

  • Ros Altmann

    Ros Altmann

    MP Briefing on cross party Lifeboat amendments

    MP Briefing on cross party Lifeboat amendments

    MP Briefing on cross party Lifeboat amendments

    by Dr. Ros Altmann

    (All material on this page is subject to copyright and must not be reproduced without the author’s permission.)

    The Government should just adopt these amendments and put an end to the suffering and the spin about the FAS.  How many times does the FAS have to be changed before the Government does it properly?  The victims will be fighting the Government in the court of Appeal on 25th July, how can it be right to force them to keep fighting like this and continue to waste taxpayers’ money on defending this case?

    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 really true.

    Firstly, there are already over ten thousand people past pension age, yet 90% of them have had nothing at all from the FAS, so those who need urgent help are still not receiving it.  Secondly, rather than billions being spent, the FAS has paid out just over £4m since 2004 (and has cost over £5m to run).

    Finally, the 80% is not really 80% and continually opens us up to charges of ‘spin’.  In fact, the FAS pays 80% of something called the ‘core pension’ which is not the members’ expected pension at all.  This ‘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 of the 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 their scheme pension age

    Then takes 80% of this lower figure, then deducts 22% tax at source and then pays the rest out only once the scheme has finished winding up!

    In fact, most schemes have not finished winding up yet (i.e. they have not yet bought annuities with the scheme assets) so the 1300 or so who are receiving FAS payments are only getting 60% of the ‘core pension’.

    In other words, the FAS payments are not nearly as generous as the PPF, they are not paying 80% of members’ pensions, 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 that are going into 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 with 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 Government has been trying to mislead MPs during debates on the Pensions Bill but their claims are not right.  It is worth listing some of the arguments you may encounter.

    Claim 1: A lifeboat fund would steal money from other people’s pensions or insurance policies rather than from unclaimed assets.  Not true. The amendments do not specify any assets to be used at all.  The government would be free to collect unclaimed assets from whatever sources it wished.  This would include assets held by banks and building societies.  The government already plans to take £400m of such assets to fund youth projects.  Morally, there is a stronger case for addressing the pensioners’ injustice first because the unclaimed assets are more likely to have come from older people.

    Frank Field and Derek Wyatt did a considerable amount of work on this, documenting the experience in Ireland where MPs were originally told there was only likely to be around €3 million in unclaimed assets.  The government ultimately collected €196 million.  Grant Thornton’s UK estimate of unclaimed assets is in excess of £2 billion.

    Claim 2: The Lords amendments are not necessary because the government has already put £8 billion into the compensation fund and the Financial Assistance Scheme (FAS) has been strengthened to pay out 80% of members’ pensions. 

    • FAS is a shambles and probably irredeemable.  10,000 pensioners should already be in receipt of it, but only 1,300 have received anything.  It has cost nearly £10 million to administer, with only £4 million reaching pensioners
    • The 80% is not 80% of the full pension. FAS takes the member’s expected pension, deducts all their inflation linking, deducts some of the revaluation, deducts their tax free lump sum, deducts some widows’ benefits, deducts the ill-health benefits, then calculates 80% of this figure, then deducts 22% tax at source to get the final figure.  This is only from age 65, not scheme pension age.

    Claim 3: Raising FAS to Pension Protection Fund (PPF) levels is 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 –

    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

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