PMI Soapbox – please support compensation for wind-up victims
by Dr. Ros Altmann
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The victims of pension scheme wind-ups are still waiting for justice, despite the Parliamentary Ombudsman and Public Administration Select Committee reports, clearly showing Government maladministration caused grave injustices which should be fully compensated. Until these people receive proper compensation, confidence in pensions will continue to be undermined and I am calling on PMI members to please support this campaign. This is not just about pensions any more. The Government’s rejection of the Ombudsman’s findings and recommendations is unprecedented and undermines our constitutional safeguards.
Far worse than Maxwell…
2 ½ years ago, I wrote a ‘PMI Soapbox’ about one of the biggest social injustices of our time. I thought then, wrongly, that the Government had agreed to compensate those who had lost what they were led to believe were ‘safe’ and ‘guaranteed’ pensions. In fact, the promised ‘Financial Assistance Scheme’ was really – as so much else in pension reform these days – just hollow political spin. Over 100,000 members lost their occupational pensions and much of their state pension, when their company scheme wound up. So far, about 200 people are receiving well below the pension they were expecting from the FAS.
Can you imagine saving all your life, believing your pension is guaranteed, having watched Government introduce new laws which it said would ensure proper protection, even contributing thousands of pounds more in additional contributions and then finding the law has taken your pension away from you? And that nobody – either inside or outside Government – ever told you the truth about this inadequate protection.
The pensions industry has been deafeningly silent in public about the campaign for pensions justice.
Contrast the situation now with the Maxwell scandal.
On 4th November 1991, Robert Maxwell fell off his boat. 32,000 members soon discovered his eight pension funds could not afford their pensions because he had defrauded them of £400million. Within a few months, the then Government had arranged:
- all members’ pensions to be paid in full without interruption
- anyone reaching Scheme retirement age to receive pension
- anyone needing an ill-health pension to receive it
- all state benefits taken back into SERPS for free
- a special trust to collect funds to rescue Maxwell pensioners.
By contrast, some nine years after the first schemes failed under the new rules since 1997, rules designed to protect pensions properly after Maxwell, this Government
- has left scheme members without their pensions
- refused to pay ill-health pensions
- refused special help for widows
- has not taken GMPs back into SERPS – meaning ‘Guaranteed Minimum Pensions’ were neither ‘guaranteed’ or ‘minimum‘, despite official materials assuring members their contracted out pensions would pay ‘at least as much’ as SERPS.
It should not really be necessary to repeat the arguments for compensation, because since 2004 two authoritative, independent reports have proved this is actually Government’s responsibility. Both the Parliamentary Ombudsman and Parliament’s Public Administration Select Committee concluded unequivocally that Government is guilty of maladministration and should organize proper compensation for those affected. Yet Ministers are still trying to pretend they did absolutely nothing wrong.
The Government’s position seems impossible to defend. Effectively, the changes in the law in 1997 converted these defined benefit schemes into defined contribution schemes on wind-up. The official wind-up priority order was like theft, as is the Government’s insistence on confiscating members’ AVCs on deemed buyback. Government’s endorsement of the employers’ pensions promises, reassuring messages of safety and oversight of the MFR regime, left members participating in an unfair contract – one which Government policy encouraged them to enter into. If this happened in the private sector, Government would ensure full compensation was paid quickly, but when Government itself is found guilty of effectively ‘mis-selling’ these pension schemes to members, it simply refuses to pay.
Government was in charge of the risks, encouraged members to join and chose not to inform them properly.
If members had been properly informed, these dreadful losses would have been avoidable for some and much less serious for others. But they were denied any chance to get employers to put in more money, or make alternative arrangements for their future. If members had not been lulled into a false sense of security, the other injustices they have suffered (sense of betrayal, shock, outrage, ill-health) would also have been mitigated.
How can people involved in pensions just stand idly by and watch this injustice drag on? Many pension professionals – particularly actuaries –knew about these wind-up risks and also knew members and trustees were unaware of them. If only they had warned publicly of the potential devastation of wind-up. Of course, the actuarial profession told Government that members and trustees needed to be warned, but rather than encouraging scheme actuaries to tell trustees or members, the profession waited for Government to take the lead. With hindsight, this has caused tremendous suffering, although at the time I expect actuaries did not appreciate the awful consequences. Nevertheless, they surely bear some moral responsibility to help rectify the proven injustices.
The Ombudsman concluded that, in most cases, the injustices were not caused by employers or trustees, but by Government maladministration – and also the legislative framework, including the rules of wind-up and inadequate funding standards. The legislation failed to provide the protections it was supposed to offer, and which Government told members they could rely upon.
What arguments have been used to defend the Government’s stance?
The Government says the Ombudsman recommended a £15billion taxpayer-funded rescue. This is not true. Firstly, the Government’s own estimates of compensation show the real figure is closer to £3billion and, anyway the Ombudsman said Government must ‘organise’ compensation, which is very different from ‘funding’ it. In reality, Government can well afford the average annual £100million or so over the next 60 years required for proper compensation, but it could also seek to recoup some of the costs from other sources, or use unclaimed assets if it wanted to.
Some commentators suggest the Ombudsman’s report just focused on a few leaflets, which misled the public. The maladministration stems much wider than this. Certainly, the information the Government chose to issue to the public was incomplete and unreliable and OPRA even told trustees, who then told members, that 100% MFR funding meant enough money to pay all pensions on wind-up. There was clearly maladministration here, but the Ombudsman discovered much more than just Government leaflets.
In particular, the original policy intention of the MFR was to ensure adequate funds to pay accrued pensions on wind-up. Therefore, the law did not allow trustees to demand more money from sponsoring employers. In reality, however, the Ombudsman discovered the Government and actuarial profession secretly agreed the MFR formula should only provide a 50/50 chance of non-pensioners actually receiving full pensions on wind-up. This important fact and the impact of the priority order was hidden from the public by both Government and actuaries. Furthermore, official oversight of the MFR failed to take account of the security of members’ pensions on wind-up – even though that was the original policy intention. In weakening the MFR, Government reduced member security, without telling members.
It has been suggested that members could not have done anything to mitigate their losses, this again is not true.
There are many things they could have done, if they had known the true risks they faced. For example, retiring and securing their pensions under the legal priority order rather than staying on to help the company. Lack of full concurrency also meant members were relying totally on the one source of retirement income. If they had known this retirement ‘basket’ had large holes in it, they would not put all their eggs in it, but could have decided to diversify their retirement savings.. Some could have transferred out, others would not have transferred money in, many could have saved in different ways, rather than contributing AVC’s to their scheme, they could have cut spending in case they needed money later, they could have taken out separate life insurance just in case the worst happened and, after 1997, some schemes could even have considered contracting back in, if they had known that GMPs were not really safe. But it is too late to do any of these things now.
It is also important to emphasise that not all the companies involved have gone bust. Around 10,000 people lost pensions in solvent employer schemes. The funding standards and laws governing wind-up were so weak that employers could legally walk away from their pension liabilities, leaving workers with no pension at all.
It has been suggested that because there was not enough money in the schemes, members as a whole would have lost out anyway, so Government is not responsible. This argument misses the point entirely. The fact that, if some members had retired and secured their pensions, others would have lost, does not mean compensation is inappropriate. Those members have still been wronged. Pension schemes are not just fixed pools of money. They are for paying pensions to scheme members. If trustees and members had known there was nowhere near enough money to actually pay the promised pensions, they could have pressed for more. Some may have achieved that, or managed to take security over company assets, but we will never now know, because it is too late. False reassurances, confusing actuarial advice and weak protections prevented members and trustees from achieving better funding for their schemes.
Of course, in cases where employers, actuaries or trustees have behaved wrongly, Government could still try to recover monies, but members should not be left without their pensions in the meantime.
The Government’s behaviour is unprecedented. No Government has ever before refused to accept both the findings and recommendations of the Parliamentary Ombudsman. This issue is no longer just about pensions and those who have lost out on wind-up but has become one of constitutional importance.
The UK has a long-standing system of checks and balances on Government behaviour to allow Members of Parliament to protect their constituents if Government actions cause grave injustices. It is surely wrong for these constitutional safeguards to be over-ridden with impunity and the Government is now facing a Judicial Review on this issue. Why is it prolonging this suffering? Anyone who believes in our democracy and in social justice should be concerned at what is happening.
Furthermore, of course, this issue is central to efforts to restore faith in pensions. Refusing to compensate undermines pensions confidence. Who could trust a national pension savings scheme, if the Government treats these people so disgracefully?
Saga has publicly backed this campaign now, with its 4 million customers being asked to sign a petition and lobby their MPs to insist on proper compensation.
If PMI members want to help, please contact your MPs too. Ask them to require the Government to admit its obvious maladministration, organize compensation and put this shameful episode behind us. Then perhaps we can move on to restoring confidence in pensions for the future.