Press Release on Government rejection of PASC report
by Dr. Ros Altmann
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The DWP’s rejection of the PASC report (published today) is just as shameful as its rejection of the Parliamentary Ombudsman’s report itself. Our Parliamentary democracy is being undermined before our eyes, with a Government that is choosing to be its own judge and jury and only to consider its own interpretation of evidence as valid. Does the Government actually understand its duties? It is deeply worrying that Ministers seem to be unable to grasp what their responsibilities are and this whole scandal suggests that occupational pensions are in the hands of people who have shown spectacular incompetence and lack of understanding of their remit.
The Government’s statement is full of half-truths and untruths and it is important that the public understand this. Here are some examples:
1. The Government is trying to pretend that this is all just about a few leaflets – the report is about far more than this and encompasses the whole role of Government in protecting member security.
2. The Government says it did not cause these schemes to fail – this is not the point. If the Government had ensured that the schemes had sufficient funds for wind-up – as it was supposed to and as it said it had done – this would not have mattered.
3. The Government says trustees were responsible for members security – but this is not true, because trustees could not force an employer to put in more than the official minimum level, and trustees had no discretion to divide scheme assets fairly on wind-up because the Government’s rules prevented this
4. The Government says these were schemes provided by employers not Government – but Government endorsed them and assured members they were safe
5. Government says more members should make use of ‘deemed buyback’ to get their SERPS rights back – this will not help anyone now because it would just reduce their FAS payout and the process of deemed buyback is too difficult and people cannot get advice
6. The Government says its Financial Assistance Scheme is an adequate response – but the truth is that it is not providing the urgent assistance needed and is leaving members destitute while Government claims it has provided help that does not arrive.
Finally, today’s papers issued by the Government suggest that DWP figures cannot be trusted. In June, Mr. Purnell claimed that extension to the Financial Assistance Scheme would cost taxpayers £540million in net present value terms (this is the real value of the so-called £2.3bn, which is a spurious ‘cash cost’). However, today, without any explanation, the DWP says that the net present value is £783million. How can the same cash cost be worth such a different figure today, than it was in June? Which figure should we believe? Can we actually trust any of the figures which the DWP has released in this whole affair?
Notes for editors:
1. The Government’s rejection of both the findings and recommendations of its own Ombudsman and its own Parliamentary Select Committee is totally unprecedented and will be subject to a Judicial Review on 7th February in the High Court. The Government’s reasons for rejecting the findings of maladministration do not stand up to scrutiny and, as the PASC says ‘nobody could possibly deny there has been maladministration here’.
2. The Pensions Action Group will be demonstrating in London, handing in a petition to Downing Street calling on both the Chancellor and Prime Minister to end this scandal and organise effective compensation for those who have suffered such dreadful losses, through no fault of their own.
3. The Chairman of the PASC – Dr. Tony Wright – has laid an Early Day Motion in Parliament this week, calling on the Government to organise proper compensation, from both taxpayer and non-taxpayer sources and highlights the fact that the treatment of these individuals is worse than that suffered by Maxwell pensioners, even though they were the victims of clear fraud, whereas this scandal has been shown to be the Government’s fault directly. The text of the Early Day Motion (Number 2886) is as follows:
EDM 2886: That this House expresses its concerns about the continued distress of all those affected by the loss of their occupational pensions on wind-up; notes the report from both the Parliamentary Ombudsman and the Public Administration Select Committee that identify the need for the Government to put together an effective rescue package; is concerned that the measures introduced so far have been slower, and provided less help, than the measures introduced for members of Robert Maxwell’s MGN pension scheme in the 1990s; believes that an effective compensation package could combine both taxpayer, and non-taxpayer, sources of funding; and recognises that such action is essential if future trust in pensions is to be established.
Fuller details of why Government’s response is unacceptable:
1. The Government is trying to pretend that this is all just about a few leaflets.
That is a parody of the situation. It is about far more than that. The Ombudsman’s and PASC reports cover the whole role of Government in overseeing and safeguarding the security of members of occupational final salary schemes. The findings show that the Government:
– was careless and negligent in its oversight of the protection regime (MFR) for pensions when it either weakened, or failed to strengthen the official funding standards governing such schemes,
– failed to ensure that this MFR was kept in line with its original intention of protecting pensions on wind-up
– failed to warn members about the risks they faced and lulled them into a false sense of security, depriving them of the chance to protect themselves and their families
The maladministration on all these areas is clearly demonstrated in both reports, but the Government has chosen to simply ignore it!
2. The Government says it did not cause these schemes to fail
This is not the point. The point is that the schemes did not have sufficient funds when they failed. If the MFR had been in line with its original intention – of ensuring members’ pensions could be provided on wind-up, then the failure of the schemes would not matter. A classic example here is a scheme where the company had factories in both Northern and Southern Ireland. When the company became insolvent, all members of the Southern Ireland factories were protected by Eire law and got their full pensions on wind-up, but all those in Northern Ireland – subject to UK pensions law – lost their pensions. The UK was supposed to have protected pensions properly on wind up, told the public that it had done so, but failed to ensure that the protections were kept strong enough. This is clearly the Government’s fault. The issue here is not about the schemes, it is about the members and what they were led to believe and how they were protected.
3. The Government says trustees were responsible for members security.
This is not true. Trustees were unable, in law, to force an employer to put in more than the MFR and, as the MFR was allowed by Government to weaken, trustees could not protect members at all. Again, the MFR was the Government’s responsibility. Trustees were also not permitted to divide the scheme assets fairly on wind-up. They had to follow the legal priority order, which has taken away money from long-serving older members and used it to buy pensions for other people, leaving those close to retirement with nothing at all. That is what Government did and trustees cannot prevent it.
4. The Government says these were schemes provide by employers not Government
That is true, but they were endorsed by the Government and Government said members’ pensions were protected ‘whatever happened to the employer’. Members believed this at the time, but are now being told they should not have trusted what the Government said or wrote in its publications. Of course, these schemes also contained members’ state pension rights from SERPS/S2P, which the employer had contracted out of on their behalf. The Government did not even protect members’ ‘Guaranteed Minimum Pensions’ on wind-up.
5. Government says more members should make use of ‘deemed buyback’ to get their SERPS rights back.
This is disingenuous in the extreme for many reasons:
- For those in most urgent need of help, who are close to or already past retirement, taking deemed buyback would be no help at all, because it merely reduces the amount of financial assistance they will get from the Government’s Financial Assistance Scheme (FAS).
- Members have to buy themselves back into SERPS and cannot even restore benefits it full because the amount of SERPS they can recover will depend on the MFR level of their scheme. By contrast, after the Maxwell scandal, his members were taken back into SERPS, in full, for free.
- The Inland Revenue is trying to confiscate members’ additional voluntary contributions, if they want to buy back into SERPS. This is illegal, but members are being told they will have to get their trustees to sue the Government to prove that!
- Members are told to take independent financial advice before deciding whether to take deemed buyback, but no advisers can advise on such small sums. Furthermore, the Government does not give a figure for the amount of SERPS people will get from deemed buyback until after they decide to accept it, so it is an impossible decision for most people!
6. The Government says its Financial Assistance Scheme is an adequate response
This is simply not true. The PASC and Ombudsman both said that the FAS is not good enough, does not have sufficient funds and is paying out too slowly. Of the 10,000 or so people already past pension age, only around 400 have had any money at all. It is supposed to be helping those in most urgent need, surely these are the ones who desperately need their pensions now. The ‘extension’ to the FAS does not help any of those who are already near or over pension age, because it only applies to younger people. Also, the £2.3bn figure is not correct. On 20th June, Mr. Purnell said that the real figure is £540m over 60 years. In fact, the Government’s response today suggests that the net present value is £783million, without any explanation as to why this figure is so different from the £540m in June. This throws doubt on the DWP’s ability to calculate any figures in this issue. The bottom line is that the FAS is political spin, designed to pretend that members are being helped, but is leaving destitute while Government claims to be helping them. This is a disgrace.