Stripped Of Our Pensions – The Nightmare Is Back.
by Dr. Ros Altmann
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I’m so sorry to have to tell you but there is another pensions nightmare unfolding. More people are being stripped of their pensions!
Having fought so hard to try to ensure all pension scheme members will be protected in the event of employer insolvency, I have just discovered that the 2004 Pensions Act is flawed and some pension scheme members are about to be told that the PPF does not protect them, even though it has collected levies each year and they were told they would be covered. This is all due to some legal technicality over the definition of the word ’employer’. Another example of the ludicrous complexity of our pensions law, but this is not just about technicalities, it is people’s lives. The Government must correct this flawed legislation immediately, before more people endure the extreme distress of losing the pension they were relying on.
Hope you are well and please help highlight this dreadful situation, so we can get the law changed as quickly as possible.
We thought it could never happen again – we were wrong!
UK pension scheme members are not protected and can still lose their pensions
Loopholes in PPF legislation mean members are once again not safe
Government must amend the law immediately!
Serious flaws in the legislation designed to protect members of UK final salary pension schemes have come to light. Members of a scheme whose employer has been struggling to support the pension scheme for years and paid levies to the Pension Protection Fund (PPF) have been refused entry to the PPF on a technicality. The members themselves are now without protection, facing the potential loss of much of their pension. How can this still be happening after all the pain, suffering and fighting in recent years?
We were told that the PPF would ensure members were protected properly in the case of employer insolvency in future. Indeed, members of UK pension schemes have been relying on such protection and they were reassured of this by Government. After witnessing the devastation that unexpected pension losses can cause, it is unbelievable that this is happening again. Yet members of the G&H pension scheme are facing the loss of much of their pension. And there are potentially more – some very large schemes – which could be similarly affected. The assurances of PPF protection have turned out to be false. Will Government never learn?!
The problem seems to revolve around the legal definition of the scheme’s ’employer’. Apparently, a ‘sponsoring employer’ is not the same as a ‘principal employer’ for the purposes of pensions law! This scheme has 40 members and a £1million deficit on the PPF basis. It has paid its PPF levies each year, as requested and has had no previous indication that it was not fully covered by the PPF. The employer has been supporting the scheme since 2002 and wanted to ensure that members’ pensions would be paid. Unfortunately, the recession has led to the failure of the company but it has now emerged that a flaw in the law has left members unprotected by the PPF.
The PPF itself has simply offered the scheme’s trustees a return of their levy payments and is trying to wash its hands of the situation. This is totally unacceptable. What are members supposed to do?
They are now at the mercy of the costs of annuities and the new legal wind-up priority order which will require trustees to buy out the PPF level benefits with annuities and reduce all members’ pensions pro rata to reflect the fact that there is not enough money.
The pensioners themselves, who have already been living on their pensions for years, will suddenly see their pensions reduced and those not yet retired will not get their pensions paid even at the PPF levels. They may lose more than half their pensions. In fact, the reductions could be even greater if annuity prices keep rising. Scheme assets are valued around £2million but the deficit is well over £1million.
This loophole in the law should never have existed and I am calling on the Government to urgently introduce legislation to ensure that this scheme, and all others in a similar position, are covered by the PPF in future. The law must be changed immediately!
A sponsoring employer and a principal employer should be the same thing. This company has taken on responsibility for the pension scheme and paid contributions and levies in good faith to the PPF. Members have always been led to believe they were covered in the event of employer insolvency and the intention of the law was clearly to ensure that such situations could not arise ever again.
Victims of pension scheme wind-ups were fighting for years to ensure they and all other members of final salary schemes in future would be protected. It is a travesty that the law has not been devised properly to ensure its intention is carried out.
There can be few things worse than members close to retirement suddenly finding their pensions have disappeared, or pensioners themselves suddenly being told the pension they are living on is being substantially reduced.
The Government must act immediately to correct this flawed legislation.
2 December 2010
Dr. Ros Altmann
The Saga Group
NOTES FOR EDITORS:
- The G&H scheme was taken over by Zejwa Ltd in 2002. At the time the scheme was already closed, but the company did not want to just wind it up (which it could legally have done at little or no cost at that time) because this would have left non-pensioner members without their pensions. So the company’s management decided to support the scheme, which it has done over the past years. It paid levies to the PPF each year and everyone assumed that the members were protected.
- Unfortunately, during the recession, Zejwa Ltd hit hard times and went into insolvency last year. The Trustees of the pension scheme duly applied to the PPF and members believed their pensions were under its protection. Completely unexpectedly, the Trustees have received notification from the PPF that the scheme does not qualify.
- The reason given is that in 2002, the scheme was already closed and no members were accruing extra benefits since that time. This means that although the employer responsible for the scheme under Trust and tax law is called the ‘principal employer’, it is not considered under the 2004 Pensions Act as a ‘sponsoring employer’ because it has not actually employed any members since it took over responsibility for the scheme.
- This is absolutely astonishing and it seems that, because under the terms of the 1995 Pensions Act, there is no Section 75 pension debt due, the PPF is saying it cannot accept the scheme. The complexity of our pension system is such that even those drawing up our laws cannot properly achieve their desired aims.