Come on Gordon – sort out this mess
by Dr. Ros Altmann
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Dear Mr. Brown
I am writing to you on behalf of the 125,000 people who, through no fault of their own, have been stripped of their company pensions since 1997. I particularly want to remind you about ten thousand of them who are already past their pension age. They have been the most severely affected, but, despite frequently trumpeted ‘extensions’ to the Financial Assistance Scheme (FAS) supposedly designed to help them, they have been abandoned.
These victims saved diligently for their retirement, just as the present Pensions Bill reforms want to encourage people to do in future. They believed Government assurances that their money was safe, whatever happened to their employer, but lax laws failed to provide the promised protection for their occupational pensions. Despite meeting the legal funding requirements and assets being kept separate from the company, there is not enough money in the schemes. In such cases, the law requires trustees to divide the assets so that members who contributed for decades but were not quite retired can receive nothing, while their money is used to provide for those already drawing pensions. Their life savings have therefore disappeared when their employers went bust or legally wound up their schemes.
One of your first acts as Prime Minister could be to bring a fair and final resolution to the worst pensions scandal the UK has ever seen. That would surely be a fitting balance to one of your first acts as Chancellor, which was to remove money from their pension schemes by taking away dividend tax credits. Your advisers at the time told you this would weaken pension funds and that they could not predict what would happen to smaller schemes. Well, it turned out that hundreds of such schemes did not survive, and these are the innocent victims.
Perhaps you do not realise that the FAS is a shambles. As the Sunday Telegraph has been highlighting, this ‘assistance scheme’ has turned into a farce. Since it was announced in 2004 it has paid out only about £5m to under 1500 people, has cost £10m of taxpayers money in administration and has so far failed to reach the ten thousand people I am asking you to focus on today. Sadly, some have died or committed suicide while waiting for their money.
In your recent budget you suggested you will extend the FAS to ensure all 125,000 victims receive 80% of their pension, at a cost of £8bn. I’m afraid this is simply not true. It is a classic example of the spin you have assured the nation you want to move away from. Let me explain.
The FAS will also not help all the victims. In fact, those who should already qualify for the FAS are hardly better off after your announcement, because nothing is being done to ensure they get their money quickly. Some schemes even remain excluded altogether because the employer is still trading, yet there is nothing these members can do recover their pensions.
The FAS will also not pay 80% of their pension – this is more spin. The FAS has invented a new concept of ‘core’ pension, leaving out many of the basic features of scheme pensions, and then taken 80% of this much lower figure. It excludes inflation linking, full revaluation, full widows benefits, tax free lump sums and even ignores the scheme pension age.
Furthermore, the £8bn is worth just £1.9bn in real money (net present value), to provide payments for the next 60 years. All FAS benefits are taxed and some of the money will replace means-tested benefits, so the net cost will actually be significantly lower
Please, Mr. Brown, you need to sort this mess out now. You must end the suffering and get money quickly to those who need it today. After the Maxwell scandal, the then Government rescued his pensioners straight away, yet, since 1997, thousands of pensioners have been left penniless for years. It is these people who need your attention so urgently.
The House of Lords has passed amendments to the Pensions Bill that would finally see a fair and effective resolution of this scandal. They will come back to the Commons next month and provide a test for your new premiership.
They call for everyone to receive the same level of compensation, on the same terms provided by the Pension Protection Fund (PPF) – which is the scheme set up in 2005 to ensure members of schemes which wind-up in future will receive nearer 90% compensation. The amendments would allow FAS scheme trustees to pay anyone who has already reached scheme pension age, just as the PPF does, instead of making them wait for the FAS bureaucracy. Their scheme assets could pay them their pensions now. This is the practical way to ensure that the money actually reaches the thousands who have been abandoned. The extra cost of providing PPF rather than FAS level benefits is around £20m a year for 60 years, with a net present value around £640m. This is a tiny price to pay to end this national disgrace. To put these sums in perspective, official mistakes in benefit payments each year cost taxpayers over £700m.
When Governments make mistakes, taxpayers have to foot the bill for compensation. Why not just commit to doing the decent thing and end all the fighting? The Government is facing another Judicial Review, to prove that the recent FAS extensions do not comply with February’s High Court ruling ordering the Government to compensate in light of the Parliamentary Ombudsman’s findings of maladministration. The appeal against that High Court verdict itself will be heard next month. Why are you forcing these people to fight in court and spending so much taxpayers’ money trying to defend the indefensible? Committing the extra £20m a year would provide a fair compensation package to the innocent victims of this country’s failed pension policies.
Using unclaimed financial sector assets would be one way of mitigating the costs to the taxpayer. Using the assets in the schemes themselves, rather than buying expensive annuities would also be more effective. The victims should not have to wait for yet another Review. The amendments passed in the Lords commit the Government to sorting this out properly now.
Come on Mr. Brown. Show your courage and your statesmanship. Bite the bullet on this one and just agree to pay PPF level immediately to everyone affected. For goodness sake, get this right as soon as you can. Justice demands it. The country is watching you.