Continued injustice of Financial Assistance Scheme – even after extension
by Dr. Ros Altmann
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FINANCIAL ASSISTANCE SCHEME CHANGES TOO LITTLE, TOO LATE – WILL UNDERMINE WHITE PAPER REFORMS
Despite the positive spin and while any extra help for those who have been stripped of their pensions is welcome, the Government’s changes to the Financial Assistance Scheme are a further example of pension injustice. By refusing to comply with the recommendations of the Parliamentary Ombudsman and by refusing to behave honourably on this issue, the Government is undermining confidence and trust in both pensions and the word of Government. No-one could trust a National Pension Savings Scheme in future, on the basis of this precedent.
The White Paper reforms are designed to encourage people to take personal responsibility for their retirement in future and to engender a new retirement savings culture. What Government doesn’t seem to appreciate is that here is a group of tens of thousands of people who did exactly what Government is saying we need. They saved for their retirement, took personal responsibility for their pensions and have ended up with next to nothing. In fact, many of them are now far worse off than if they had never contributed to a pension scheme at all. They have lost their entire occupational pension, all their contributions and also some of the state pension they would have had if they had never joined their company scheme. Just ten years ago, the Government announced that people should join company pension schemes and that it had put legislation in place to make them safe and to protect them by law. These people believed that at the time and contributed their money each week. But when the Government’s assurances turned out not to be true, a new Government just says that they should never have believed that their pensions were safe in the first place!
What message does this send to the nation? It tells people that, if you listen to the Government and lock your money into a pension, you may end up worse off. Once you trust what the Government says on pensions, if it all goes wrong a new Government may tell you that you were a fool to believe anything the previous Government said. How can we restore trust and confidence in pensions if this situation is allowed to stand?
As long as the Government refuses to compensate those who have lost out when their pension scheme wound up, people will not trust pensions. We need ‘compensation’ not ‘assistance’, in line with the recommendations of the Parliamentary Ombudsman.
The extension of the already very low level of benefits from the Financial Assistance Scheme is wholly inadequate and seems to be designed to try to get positive headlines, rather than help those affected. It will still leave most of those affected without most of their pensions. The changes announced today extend the current 80% benefit level to those within 7 years of scheme pension age. But, for those from 7-11 years away from scheme pension age only 65% of their ‘core pension’ will be paid and those 11-15 years away will be reduced to just 50%. But the reality is far worse. These are just the headline figures. Those who have lost out so badly will have to keep fighting for their pensions. After years of begging and battling, the Government has still only offered meagre recompense for their losses. The Financial Assistance Scheme has cost over £5m so far, but is only helping a few tens of those 125,000 people affected.
So why is this FAS so inadequate?
- Many are still excluded. Those excluded are as follows:
- People over 15 years from pension age (Example, Richard Nicholl contributed 27 years and is 3 months beyond the cut-off so gets nothing)
- All members of solvent employer schemes
- All members of insolvent foreign companies, unless the company registered as insolvency in the UK (Example, TWA is bankrupt but its UK employees have been told they are excluded from the FAS)
- No payments will be made until age 65:
Even if scheme pension age was below this. Even women whose scheme pension age was 60 and who get their state pension at 60 will get no FAS payments until age 65. While the Government says these people cannot get a penny until they are age 65, public sector workers, MPs and other ‘favoured’ groups are being allowed to use taxpayers’ money to maintain their generous pensions in future from age 60.
- No inflation-linking
If inflation is 2.5-3% a year, then within 20 years or so the value of this pension will halve in real terms. After 20 years the 80% will be worth only 40% and losing the inflation linking means that, by the end of retirement, those who initially get 50% of the pension will end up with only 25%!
- £12,000 cap
Payments are capped at £12,000 a year, so those who were expecting pensions over this will lose much more. By comparison, the PPF cap is £25,000.
The headline of £2billion cost of FAS is misleading because it is not money that is needed now. These are pensions and will be paid over many years, so the annual cost is quite modest in comparison to this headline figure. Also, the payments are subject to tax, so the Government will recoup some money here and there will also be further expenditure savings in reduced means tested benefits.
In the interests of restoring confidence and a desire to establish a new retirement savings culture, it is essential that those who have lost out as a result of doing exactly what Government is trying to persuade people to do in future, must be compensated. This is likely to cost £100-£150m a year for about 50 years. The money need not all come from the taxpayer either, it could be paid from unclaimed assets. But it is urgent that compensation be agreed and for the Government to admit its mistakes, sort out the issue properly and move on with pension reform.