Article for Engaged Investor on FAS inadequacies
by Dr. Ros Altmann
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The Government’s Financial Assistance Scheme (FAS) is, sadly, woefully inadequate to deal with one of the greatest social injustices of our time. The FAS is just the start of what is required to address this huge problem of compensating members of final salary pension schemes who find their years of pension contributions have disappeared, despite Government assurances that such pensions were safe and protected by law.
Not only have their occupational pensions been taken from them, but there is another element which is perhaps even more outrageous. Many are finding that they have lost their state pension rights too! They will not even get the full amount of what the Government called a ‘Guaranteed Minimum Pension’ (GMP). This part of their pensions was paid for by contracting-out of the state system, into what the members were told were ‘approved’ schemes, which would provide at least this ‘guaranteed minimum’ amount of pension. It was the Government which called these ‘guaranteed minimum pensions’, not employers, trustees, or advisers. If they end up being neither ‘guaranteed’ nor a ‘minimum’, then surely these people must be compensated.
After enormous media and political pressure, the Treasury agreed to pay £400million over 20 years, to provide ‘assistance’ to some of those affected. However, this is nowhere near enough money to deal with the problem. The DWP has been trying to explain what it is able to do within the £400million budget and made some announcements ahead of the election. Members were told that the FAS will only cover those who were within 3 years of scheme pension age last May, and they will only get 80% of their promised pensions, up to a cap of £12,000 a year. Unfortunately, there was more ‘small print’ that was not apparent at first.
The original statement omitted many of the vital details. For example, even if scheme pension age is 60, no-one will get any FAS payments until they are 65. Losing 5 years of pension is an enormous blow.
In addition, it has now emerged that no money will be paid to members until their scheme finishes winding-up and in some instances this can take years. There will also be no provision for those in ill-health, who desperately need their pensions, and members of schemes where the employer is still solvent – even though they have no means of forcing the employer to pay more. There will be no inflation-linking and no tax free lump sum, which again represents a significant reduction in benefits. Of course, there is no word yet on any help for those who were just over 3 years away from retirement and a £12,000 cap is very low.
The bottom line is that the Treasury needs to release more money and accept its responsibility for proper compensation. It was the Government which promoted and encouraged membership of occupational schemes. It was the Government – and even the FSA – which told members their pensions were ‘safe’ and ‘guaranteed’.
I call on the Government to restore members’ GMPs in full and then compensate for the loss of their own scheme pensions on top of this. Having been told for years that no help could be announced, because the Government did not want to raise ‘false hope’, it seems that this is exactly what the FAS has done. How long do these people have to keep fighting and begging for their pensions? How will we ever get anyone to trust Governments on pensions in future, if this injustice is allowed to stand?