Press Release from Dr Ros Altmann
ANOTHER DAMNING VERDICT AGAINST THE GOVERNMENT
But DWP in denial - wants to waste more taxpayers' money on Lords Appeal
This morning, three Court of Appeal judges delivered another crushing verdict against the Government. The Secretary of State's appeal against last year's High Court judicial review ruling that 'no reasonable Secretary of State could rationally disagree' with the Ombudsman, was dismissed. In fact, today's verdict is even stronger than last year's High Court ruling. The three judges not only confirmed that the Secretary of State's rejection of the Parliamentary Ombudsman's findings was irrational and unlawful, but also ruled that he must accept that his Department caused injustices which go beyond just financial losses. The Government DID mislead at least 125,000 people about the safety of their pensions and caused their suffering. The verdict says the Government's maladministration also led to:
* a sense of outrage
* distress
* anxiety
* uncertainty
* lost opportunities to make informed choices about their pensions
* and denied them any chance to take remedial action to protect their pensions.
We warmly welcome this judgment which, yet again, vindicates our arguments and confirms that the Government misled trusting citizens about the security of their pension savings. But we are astonished that the Secretary of State, James Purnell, wants to appeal to the House of Lords. It is now 6 - nil against the DWP. How many verdicts will it take to make the Government see sense?
This attitude merely reinforces the High Court and Court of Appeal verdicts that the Government's decisions in this matter are irrational. For the past few years, it has tried, unsuccessfully, to wear us down and even tried to bully the victims into submission, by threatening to bankrupt them if they lost the case.
We are vigorously opposing the Government's request for leave to appeal to the House of Lords in this case. It is a waste of taxpayers' money and would just further prolong the suffering caused.
The Government's argument is that Ministers are perfectly entitled to reject their own Ombudsman's findings if they 'do not agree' with them, and even if they have no good 'cogent' reasons for disagreeing! This cannot be right. This outrageous scandal is a worrying affront to our democracy. Our Parliamentary safeguards are not working well enough to protect ordinary people as intended. In this particular case, a Minister who was not there at the time, who admitted he had not even fully read the Ombudsman's report, and who has not objectively investigated all the evidence, still wants to be entitled to prefer his own view over that of the independent adjudicator established by Parliament to protect citizens from Government wrongdoing - without even having to provide cogent reasons!
The Government wants to make a last desperate appeal against a verdict that it has never liked. It beggars belief that the DWP would waste still more taxpayers' money fighting this case, trying to defend the indefensible. Despite such a strong verdict against the Government, it still wants to wriggle out of taking any blame for what it did. As the Parliamentary Ombudsman herself said 'it's maladministration, get over it.' But it seems the Government is unable to bring itself to do so.
Despite Peter Hain's welcome pre-Christmas announcement of increasing the Financial Assistance Scheme (FAS) payments to the Pension Protection Fund level for all victims, the money is not yet coming through. There is much work to be done in ensuring that all those who should be paid will actually start receiving their money and we urge the Government to work as quickly as possible to get the money to people. Instead of spending time mounting a challenge against these legal verdicts and denying any wrongdoing, they should be working on speeding up the resolution of the problems that they caused!
In any case, having already offered fair treatment to most of the victims, why does the Government still refuse to admit it did anything wrong? The FAS payments are only classed as 'assistance' not 'compensation', and provide no remedy for the non-financial injustices so many of these people have endured. At the very least it would mean a great deal to many of the victims to receive an apology from the Government for what it has done to them, but none has been offered.
We need the Secretary of State to face up to his responsibilities and apologise to past victims of this official 'mis-selling' of private pensions, while also ensuring that the Government does not make the same mistakes in future.
And what about the implications for the new proposed personal pension accounts in future? If these pensions are not really safe, people must be told the truth. If they should not be putting their money in, or if there are significant risks that they may lose much or all of any pension savings because of means testing in the pension credit calculations, as will potentially be the case for hundreds of thousands of personal account contributors, the Government must not mislead them into a false sense of security. They should be warned of that before they are automatically enrolled into a pension.
We don't want to have to watch thousands of people in future going through the same trauma as these victims have suffered. The Government must face up to its responsibilities to ordinary citizens who trust officialdom and want to provide for their own future. If they end up finding their money is all gone because the Government did not take enough care to properly inform them of the risks they face, and prevented them from making informed choices for their own future, this case will come back to haunt us all.
Dr. Ros Altmann
Notes for editors:
1. This judgment is damning of the Government's arguments. For example, it points out that the Secretary of State did not even bother to respond to the Ombudsman's specific criticisms that the Government misled people by giving them 'assurances which it was never the Government's intention to meet.' The official description which told members that the 1995 Pensions Act introduced 'a new rule "aimed at making sure that salary related schemes have enough money in them to meet the pension rights of their members" was again confirmed to be inaccurate and misleading, but the Government has never even bothered to respond to the Ombudsman's actual criticisms. As the judges point out 'Any expectation that the DWP Response would seek to meet that criticism would have been disappointed' (para 86). They say it is 'a striking feature_that the Secretary of State has not, even in this Court, sought to meet the Ombudsman's finding that the assurances _were incompatible with the Government's intentions' (Para 83). Specifically referring to the Government's defence, the judgment slams the DWP's arguments with phrases such as 'I find nothing which seeks to respond to the specific criticisms' (para 83) 'I am not persuaded that that is the correct approach' (para 91) 'neither proposition can withstand scrutiny' (para 94), 'the suggestion cannot be sustained' (para 94), 'it was irrational for the Secretary of State to reject the Ombudsman's finding' (para 95).
2. The Secretary of State's grounds for leave to appeal to the House of Lords are that the Appeal court judges were all wrong 'In failing to find that the Secretary of State is lawfully entitled to disagree with the findings of the Ombudsman on the basis of a bona fide and rational difference of view, but rather must have 'cogent reasons for disagreeing'! This is a staggering statement and suggests that politicians can be above having to explain themselves properly, even when defending their rejection of their own Ombudsman.
3. Between 1997 and 2005 at least 125,000 people lost the company pensions they had been assured were properly protected by law. In 2004, the Parliamentary Ombudsman was asked to investigate the Government's role in these pension losses and in March 2006 she published her report 'Trusting in the Pensions Promise' which concluded that the Government was guilty of maladminstration which caused injustice to the victims and that the Government should consider replacing the lost pensions in full, apologising to the victims and also making some 'consolatory payments' in recognition of the stress and distress they had suffered. The day after her report was published, the Government rejected it in an unprecedented fashion. We then mounted a Judicial Review against this decision. The Parliamentary Public Administration Committee also conducted an investigation and confirmed that the Government was wrong to reject the report and that the Ombudsman had been right. In February 2007, the High Court Judicial Review verdict found against the Government, but it immediately lodged an appeal against that ruling. Today's verdict is the result of that Appeal.
4. The Pensions Action Group is very grateful to our legal team - John Halford of Bindmans and Dinah Rose and Tom Hickman of Blackstone Chambers - for their help in this case.
The Government has come up with its own version of today's ruling. It fails to mention that the Government's appeal against the Judicial Review ruling in the High Court last year was dismissed. It has tried to put a positive spin on this, but it is a bad defeat.
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Press Release from Bindmans
“IRRATIONAL”: UNANIMOUS COURT OF APPEAL’S VERDICT ON PENSION MINISTERS’ DEFIANCE OF OMBUDSMAN REPORT
Three Court of Appeal judges today became the latest to condemn the unprecedented stance taken by Work and Pensions Ministers to reject a Parliamentary Ombudsman report that found maladministration and injustice in the treatment of up to 125,000 occupational pension scheme members. They had believed government assurances that their pensions were safe, whatever happened to the sponsoring employer, which the Ombudsman concluded were “inaccurate and misleading”.
Giving the Court’s lead judgement, Lord Justice Chadwick commented:
“in the circumstances of this case, it was irrational for the Secretary of State to reject the Ombudsman’s finding”.
adding that maladministration identified by the Ombudsman had directly caused:
“a sense of outrage, distress, anxiety and uncertainty… the loss of opportunities to make informed choices or to take remedial action and the distortion of the reality facing scheme members”
Lord Justice Wall agreed, commenting:
“Nobody reading the papers in this case could have anything but the utmost sympathy for the plight of the complainants, all of whom, it seemed to me, were decent, hardworking people who, through no fault of their own, had been – or were at serious risk of being - deprived of that for which they had worked throughout their lives, namely a modestly comfortable retirement.”
The solicitor representing the pensions campaigners that brought the test case, John Halford of Bindman and Partners, said today:
“The Court of Appeal is the latest independent body to conclude that Pensions Ministers have been wilfully blind to the failings of their Department and the multiple injustices that thousands of working people have suffered as a direct result. Though recent improvements in the Financial Assistance Scheme will be of some help to them, justice still demands acceptance of responsibility, an apology and redress of the outrage and distress caused. Instead of offering those things, we understand the Minister is to Appeal to the House of Lords. The Ombudsman’s 200 page report, condemnation by Parliament’s Public Administration Select Committee, the High Court and now three appeal Judges is apparently insufficient to persuade Mr Purnell that he just might be wrong.”
Dr Ros Altmann who has campaigned for justice alongside the scheme members said:
“It is now 6 – nil against the DWP. How many verdicts will it take to make the Government see sense? Its decision to appeal again merely reinforces the four Judge's verdicts that the Government's decisions in this matter are irrational. For the past few years, it has tried, unsuccessfully, to wear us down and even tried to bully the victims into submission, by threatening to bankrupt them if they lost the case. Enough is enough!”
On 14 March 2006 the Ombudsman ruled that the Department for Work and Pensions had acted maladministratively by failing to warn pension scheme members that they had no more than a 50% chance of recovering their pensions if the sponsoring company became insolvent or wound up its scheme before they had retired. The then Minister, John Hutton, responded the following day, rejecting the Ombudsman’s findings and recommendations that pensions be restored.
But in the first judicial review test case of its kind, three of those who complained to the Ombudsman – Henry Bradley, Andrew Parr and Rob Duncan - argued that the Minister’s reasons for snubbing the Ombudsman were irrational and that he should have accepted maladministration had occurred before rejecting her recommendations that lost pensions should be restored, distress compensated for and apologies made. They also argued that the Minister had no power to act as judge in his own cause and that once the Ombudsman had ruled there was maladministration by his Department’s officials, he was legally bound to accept that.
In February last year, Mr Justice Bean allowed the campaigners’ judicial review and in a scathing judgement held that “no reasonable Secretary of State could rationally disagree” with the Ombudsman’s conclusion that the Department’s information about pension security had been “inaccurate and misleading”. In response the Department made significant improvements to its Financial Assistance Scheme, but maintained that there was no maladministration, nor any injustice caused to the pension scheme members affected. In the Court of Appeal, where the case was heard in July, its legal team sought to portray the Ombudsman herself as “irrational” and “unfair”.
The Minister’s appeal was today rejected by the Court of Appeal, which upheld Mr Justice Bean’s conclusions on the irrationality of rejecting the Ombudsman’s key findings, and allowed the campaigners’ appeal on the basis that it was wrong to conclude maladministration had not caused a “sense of outrage, distress, anxiety and uncertainty” along with the loss of opportunities to make informed choices or to take remedial action and “distortion of the reality facing scheme members”.
The campaigners’ legal team have been told that the Minister will seek permission to appeal the judgement to the House of Lords, arguing that he should be allowed to have a “bona fide difference of view” with the Ombudsman, rather than be obliged to give “cogent” and “rational” reasons for rejecting her findings which were conspicuously absent in this case in the Court of Appeal’s view. If this further appeal is rejected, the Minister will be forced to consider the Ombudsman’s outstanding recommendations: that pensions scheme members and trustees should receive an apology and that non-financial losses, such as distress, should be addressed with consolatory payments.
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Note from Dr Ros Altmann, 19th December 2007
Now that I have a few moments, I am writing to try to help clarify the events of the past couple of days.
Firstly, I think that this FAS deal is a very decent compromise and, quite frankly, I really did not know if we would manage to get it. It is effectively ensuring that FAS recipients will get effectively about the same as they would if the PPF had existed in 1997.
I know it is not everything you deserve - you really should have 100% plus compensation, as the Parliamentary Ombudsman said. However, it is a deal on the table now and one that I feel is at least fair in most respects. After so many years of fighting and false promises, there really has been a change of mood at the DWP. At last, we have two Ministers who are willing to take responsibility for what has happened, rather than denying responsibility, as has happened for so long. Indeed, Peter Hain and Mike O'Brien have behaved as I would have initially expected the Government to, by listening to what has happened, considering the issues and then saying 'we can't let this happen and must find a way to sort it out'. The officials at the DWP have also been far more helpful.
We could, of course, have gone on fighting for more, going through the Courts, having more vigils and demonstrations around the country and continually begging the media for more coverage but my honest view is that now is the time to call a halt. The improvements we have achieved yesterday are hugely significant:
- The FAS will now include members of ALL solvent employer schemes
- FAS payments will start from scheme pension age and anyone who is already past scheme pension age will have their payments backdated to May 2004, so they will get a lump sum of money for arrears
- Payments will rise to 90% of pension (and the concept of 'core' pension is being ditched I believe)
- There will be a tax free lump sum
- The £26,000 cap will be protected
- There will be inflation linking up to 2.5% for all post -1997 accruals
- There will be allowance for ill-health early retirement from age 60 (this is the one point that I find really difficult and will hope to get changed, but the Treasury would not agree to allowing ill-health early retirement before age 60, even with people applying on a discretionary basis!)
- Scheme assets will no longer be used to buy annuities. The assets will be taken in by the Government (£1.7bn going to the Treasury!) and the Government will underwrite the FAS payments so that you have a proper underpin to the FAS payouts.
Let's face the facts. We have fought and battled for well over 5 years and this at last recognises that you should have a proper deal, not just spin.
It is a really good set of important improvements, but obviously not perfect. It does not pay 100%. It does not pay any inflation-linking before 1997 (of course most schemes did not offer pre-97 indexation, but a few did). There is no recognition or compensation for the suffering and distress so many you have been through and there are still some issues to sort out about mechanics and logistics, but we are almost there. I do think it is a cause for real celebration.
I know you deserve more and I wish I could have achieved more for you, but the reality is that none of the Opposition parties or the media called for you to get more than PPF, so achieving that would have been almost impossible. The ECJ specifically said that the Government was not obliged to compensate 100%. The ECJ ruling said as long as people got over 50%, but they did not need to receive 100%.
Of course, the Parliamentary Ombudsman recommendations were what I believe you all should have in an ideal world, but we just don't live in an ideal world. To fight on for more years and watch more people die while waiting for justice seems to me to be unwise.
The DWP has promised to hurry through regulations and legislation to enable this to happen quickly - I think it could take a few months, but at least we know it is coming. The DWP would also like to ensure that there is no need for long consultation on these terms, so that we need the Opposition parties to agree to this. I hope that won't be a problem, because having to stick to the statutory 12-week consultation period will add a huge delay.
Of course, if payments do not start in the next few months and the DWP drags its heels on this, then we will come back with a vengeance, but for now I am willing to give the Government the benefit of the doubt and I truly believe that the DWP will do its utmost to sort this out, not string it out any longer.
The one point that needs work, the ill-health provision for people under 60, is something that I feel strongly about, but at the moment I'm exhausted and need a rest, so I will try to take this up with the DWP in the new year.
Finally I would like to pay tribute to a huge number of people (including, of course, Andrew Young) without whom this victory could never have been achieved. There are so many that by naming them all, I would risk leaving out someone inadvertently and I would hate to do that. So let me just say a huge thank you to:
- all the great leading members of PAG, all of you who came to the demonstrations, organised the newsletters, contacted MPs or media and who campaigned so tirelessly and selflessly on behalf of all the (apparently now) 140,000 people affected
- all the wonderful MPs, Peers and the PASC who supported this campaign so bravely for so long - MPs from all parties who acted often against their party political interests and in favour of justice, integrity and decency - on a cross party basis
- Many Government officials who encouraged me behind the scenes
- all the fantastic media supporters from newspaper, Pensions press, TV, radio and other publications
- The Parliamentary Ombudsman and all her office for putting together such a detailed and excellent report
- Our legal team who worked so hard on the court cases
- Saga (who supported the campaign and funded some of our demonstrations) , the Police (who were so helpful at our demos) Ronnie Sloan (who provided invaluable behind the scenes assistance on actuarial and other issues) and Alan Pollock (who was so supportive and encouraging with his ideas from the war widows campaign)
and so many others who have contributed to making this possible and keeping up the pressure. Please forgive me if I haven't mentioned you specifically.
Well done to you all, it has been a privilege to meet so many of you good people and I congratulate PAG on your bravery, honesty and tenacity in keeping together, despite the occasional major disagreements, to see this campaign through to this point.
I hope that you will all now have a really good Christmas and be able to look forward to the New year, instead of fearing it as in the past.
With my very best wishes
Dr Ros Altmann
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GOVERNMENT ATTACKS PARLIAMENTARY OMBUDSMAN IN COURT
Dr Ros Altmann
Demonstration for democracy at 9.30am outside Court of Appeal
The Court of Appeal will hear tomorrow (25th July) just how Labour Ministers believe UK democracy should work. Their barrister will argue that Ministers must have ultimate power over their own Ombudsman, Parliamentary Select Committees and the Courts!
The Secretary of State's case against the victims, who had their pensions legally taken away from them after a lifetime of saving, is that Ministers do not need to listen to the Parliamentary Ombudsman, or the Courts, but are answerable only to their own MPs. If the Secretary of State decrees that his Department did nothing wrong (even at a time many years ago when that particular Minister was not even around) then everybody must accept his own verdict and those who have been wronged by his Department's actions are not entitled to any compensation at all.
In a breathtaking display of political arrogance, the Government's lawyers will spell out their contempt for the Parliamentary Ombudsman and her investigation. The Ombudsman is being forced to defend herself against an unprecedented attack on her position. Her lawyers will be asking the Court of Appeal what the point of her office would be if Ministers can, without even knowing the facts, simply decide that they are right and she is wrong. The Government's case is that the Ombudsman has been irrational and so has the High Court judge, when finding that Ministers misled innocent citizens into contributing to company pension schemes, by telling them their money was safe when it wasn't. Every independent investigation into this scandal has laid the blame squarely at the Government's door, yet still the victims have not been rescued.
Some of them will be demonstrating to highlight their plight, outside the Court of Appeal tomorrow at 9.30am. Photo opportunities and interviews will be available. These poor people will once again be having to travel from all over the country, at their own expense, often losing a day's pay, to beg for justice. It is quite incredible that this could be happening in 21st Century Britain - and under a Labour Government.
During this Appeal case, from 25th to 27th July, the Government will be asking the Court of Appeal to rule that Ministers can be judge and jury in their own cause and that even if everyone else says the Government has behaved wrongly, Ministers can legally over-ride them.
I believe that the Government's case is absolutely scandalous. Firstly, it has misled the Court about what the Ombudsman's report actually says (the Ombudsman will intervene to explain how the Government is misleading the Court). For example, the Government has tried to pretend that the Ombudsman's findings relate only to two leaflets. However, the truth is that the Ombudsman's report contained 100 pages of description of how all official information was inaccurate or potentially misleading. In an unbelievably arrogant manner, the Secretary of State says that he cannot be expected to 'trawl through' 100 pages of the Report! So here we have the Government saying the Ombudsman's investigation and conclusions have been irrational and wrong when he has not even bothered to read what she said!
Secondly, the Government is arguing that only the House of Commons can decide whether Ministers are right or wrong. This is a dangerous challenge to our democracy. Any Government, then, with a large Commons majority, can over-ride citizen's rights and there will be no protection for innocent civilians whatever. Ministers can simply lie about what independent verdicts have actually said (as the Government is doing in this case) and the truth will never prevail.
Thirdly, the Government is also arguing that its Financial Assistance Scheme (FAS) has sorted out the problem properly and will pay 80% of members' pensions. But the reality is that only 1,300 of the 125,000 victims have had any money at all (even though there are already over 10,000 past age 65 who need help immediately) and the FAS does not pay 80% of the pension they would have received from their scheme. The Government has used political spin to placate its own backbenchers by inventing a term called 'core pension' which is not the members' expected pension at all and then taken 80% of that!
The Government has also killed off the amendments to the Pensions Bill that were passed by the House of Lords and would have provided a fair and final resolution of this scandal. The Pensions Minister argued that it was cruel and irresponsible of political opponents to try to promise victims more money when it might not be 'affordable' . However, the amendments were backed by a cross-party group of MPs and called for all 125,000 victims to be treated the same as those in the far more generous Pension Protection Fund in future. Their trustees would have been allowed to pay their entitlements immediately and they would have been paid as soon as they reach their scheme pension age (not age 65 as the FAS decrees). The Government's own figures show that this would cost less than £20m a year and its own Review has shown that this would not need to cost the taxpayer anything at all by using scheme assets more intelligently than buying annuities as they do now. In light of this, it is clear that it is actually the Government itself that is being 'cruel and irresponsible' by stubbornly denying a fair rescue to these victims and forcing them to fight in court and wait for still more reviews and consultations. How many more of them have to die before the Government does the decent thing?
Having gerrymandered the political process, the Government is now trying to use the Courts to deny justice to the victims and I firmly believe that the three Appeal Court judges will stand up for our constitution and protect our democratic safeguards.
Somebody needs to show this Government that it cannot behave as a dictatorship. We have recently heard much about moving away from political spin and listening to Parliament and the people, but when it comes to matters that it finds uncomfortable, the Government seems to want the power to do exactly as it pleases.
I sincerely hope that the Court of Appeal - with the assistance of the Parliamentary Ombudsman - will show the Government just how wrong it is!
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YOUNG REVIEW CONFIRMS URGENT NEED FOR LIFEBOAT AMENDMENTS
Dr Ros Altmann
The Interim Report of the Financial Assistance Scheme Review of Assets published today by the DWP, confirms that it is urgent for the Lords amendments to the Pensions Bill to be passed by the Commons tomorrow. All Opposition parties will be supporting these amendments. It is hoped that Labour MPs will vote with their conscience and recognise the urgency of approving these proposals, to ensure a fair and final resolution of the scandal of pension scheme wind-ups which has dogged pensions in general and Labour in particular for the last few years.
Despite making several improvements to the Financial Assistance Scheme (FAS) since it was announced in 2004, the Government has consistently resisted increasing the payments to bring them into line with the amounts received by scheme members in the Pension Protection Fund (PPF). The Government's own figures show that this would cost just £20m a year for the next 50 years (or a net present value of £640m). Helpfully, the DWP's own review of scheme assets is now indicating that there are ways of funding this cost, without extra calls on taxpayers' money.
The report endorses all the following elements of the Lords amendments:
• the urgent need to halt the annuitisation of every scheme
• ways to make better use of existing scheme assets
• finding unclaimed assets for a Lifeboat fund. The Review calculates that a scheme such as that set up in Ireland in 2003, to collect unclaimed life policies, could collect £243m in its first year and then a further £70m a year thereafter - which is many times the £20m a year required to increase FAS to PPF levels!
• it will take a few years to collect in the unclaimed assets which validates an emergency Lifeboat being set up now, then being repaid later
• transferring administration of failed schemes to the PPF (which would allow trustees to pay while waiting for the bureaucracy and data to be improved)
The Review suggests all these could deliver a much better and fairer solution, at no extra costs to the taxpayer, than the current FAS arrangements. The House of Lords and all independent commentators recognise that it is vital to help the victims more and to help them NOW. The amendments, if passed, would do just that. Tomorrow, MPs have an opportunity to force Ministers to rescue these people properly at last.
The Review also clearly rules out the possibility of using pension fund trust assets and orphan assets, so the fears of the insurance lobby are not well-founded.
It would be very sad if party politics prevented MPs from doing the right thing tomorrow. I hope they will care enough about the suffering of their constituents to force through a solution immediately, rather than forcing the victims to wait even longer for justice.
The Review has particularly endorsed the following aspects of the Lords amendments to the Pensions Bill (these are amendments 15 to 24).
Halting annuitisation is urgent: The Assets Review has found that 'the current FAS scheme is not the best way of ensuring good value' (p.29) and that there is a real danger of 'a significant part of the remaining assets being annuitised soon' (p.15). Having identified that there is well over £1billion of assets in failed schemes, the amendments' requirement to put the annuitisation process on hold for a while would ensure that the assets are still there by the time the final report is released at year end. Having concluded that 'the current process of annuitisation on a scheme by scheme basis is unlikely to offer the best use of residual scheme assets', (p.19) it would be a dreadful shame if the trustees had annuitised all the assets before the Review is finalised!
Other sources of funding outside taxpayer's money: The Review then also looks at how the payments from the FAS might be increased, without extra public funding and it has identified a number of sources, again these endorse the proposals in the Lords amendments to the Pensions Bill which MPs are being asked to approve tomorrow.
Better use of scheme assets: Firstly, making better use of the assets in the schemes would give better value and allow payments to increase. This again argues for putting the annuitisation process on hold.
Use unclaimed assets: Secondly, the Review highlights that there could be unclaimed assets in life policies which would provide more than enough money to fund an increase in the payments from FAS to PPF levels. Importantly, the Review clearly says that there are no unclaimed assets in defined benefit pensions and orphaned assets, so the fears expressed by the insurance industry have proved unfounded.
However, the Review shows that it would be possible to use unclaimed Life Assurance policies, as has been done in other countries. In particular, the Review quotes the experience of Ireland, which has collected £253m in unclaimed life policies since 2003 and the Review calculates that 'the equivalent figures for the UK would be £243million in the first year and then £70m a year thereafter' (p.60). This would be many times the amount that is needed to increase FAS to PPF levels.
Emergency loan for Lifeboat fund: Therefore, the proposal to fund the Lifeboat Scheme initially with an emergency loan would allow the victims to be paid pending the collection of unclaimed assets, which the Review admits could take a few years. This is the practical and compassionate way of assisting those who are still struggling without their pensions, some of whom have been suffering for many years, some terminally ill and many still working well beyond retirement. Rather than making the victims wait for money to be found, the Government can pay them now and then look to mitigate the costs later. The increase to PPF levels requires no more than £20m a year for 50 years, and, if the Review finds that using existing scheme assets is better value, the costs will fall well below this.
Transfer administration to the PPF: The Review endorses the use of the PPF as the most efficient means of delivering assistance. For example, the Review points to the advantages of operating FAS along the lines of the PPF and managing the scheme assets, rather than annuitising, by saying 'there could well be benefits from running any FAS based funds alongside the PPF to achieve further economies of scale'. (p. 31) Indeed, when considering how to best use the remaining scheme assets, the Review concludes that a fund-based model like the PPF is the favoured option.
Dr. Ros Altmann
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Statement from Dr Ros Altmann 12th July 2007
SCHEME wind-up victims are on the brink of victory in their campaign for compensation from the government, Ros Altmann has said.
The leading Pensions Action Group campaigner believes the House of Commons debate on the Pensions Bill next week will be key to PAG success.
A cross-party amendment to the Bill – which raises Financial Assistance Scheme payments to Pension Protection Fund levels – was successfully attached in the Lords. MPs will revisit the Bill on Tuesday when it returns to the House of Commons.
Altmann said: “It is crunch time for us know. If it doesn’t go through it will go back to the Lords. I have assurances from the Conservatives that it will continue to go backwards and forwards until it is settled.”
During his “summer statement” the prime minister said payments to scheme wind-up victims could be moved towards 90pc in the near future after the review of the assets of bankrupt companies and their pension funds.
Altmann said: “Brown has given us some more spin. Saying a move towards 90pc may happen is not enough – and 90pc of what exactly? The FAS pays out much much less than the members expected pension to start with.
“Why doesn’t the government just bite the bullet and stop this awful situation. It is killing confidence in pensions and causing awful suffering. Two more have died in the last three weeks – how many more have to die before the government sorts this out?”
She added: “It is fine to have a review and work out how to pay these people without the taxpayer footing the whole bill but do not make these people wait any longer.
“More than 10,000 people have passed the age of 65 and the FAS has not helped them. I am disappointed the new Labour administration has not grasped the urgency of this situation.”
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Dr Ros Altmann wrote the following open letter to Gordon Brown. It was published in the Sunday Telegraph on Sunday 10th June
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.
Yours sincerely,
Dr. Ros Altmann
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Briefing Document for the Lords written by Dr Ros Altmann
This briefing aims to help Peers understand the need for amendments to the Pensions Bill. The amendments call for a lifeboat fund to rescue the 125,000 people who lost their company pensions when their final salary scheme wound up between 1997 and 2005. The media and the victims themselves believe these amendments would provide a fair and realistic end to this scandal and they have wide cross-party support. They would ensure that the FAS finally delivers the assistance it was set up to provide. At the moment, the FAS is not working. Only just over 1,000 people have had any assistance, as the FAS has only paid out about £4m since 2004, while costing taxpayers nearly £10m to administer.
The Clause 18 amendments, if passed, would allow trustees to pay money to those still struggling without their pensions now – without waiting for FAS bureaucracy. Members of schemes in the PPF are paid straight away by their trustees. Maxwell pensioners were rescued within a few weeks. But those in the FAS have already waited years without any money.
These decent, hard-working people trusted the Government and truly believed, after the Maxwell scandal, that their pensions had been properly protected by new laws. Sadly, the way those laws were administered has led to over 100,000 of them losing their pensions. Paying a fair compensation package will not set a dangerous precedent for the future. This is a defined group of people who have been wronged. They are the ones who were encouraged, by the Government, to put their whole life savings in one place – their company final salary scheme – on the assurance that these pensions had been properly safeguarded by the new post-1997 regime. However, in reality, those closest to retirement were actually far less secure after 1997, due to the weakness of the Minimum Funding Requirement, reduction of protection for state pension rights in company schemes and the statutory priority order which prevented trustees from dividing assets fairly on wind-up. Removal of dividend tax relief hit smaller company schemes hardest in 1997 and many could not recover. The current Pensions Bill aims to encourage people to contribute to pensions in future. But how can anybody have faith in Government exhortation about pensions if those who trusted it last time are treated so badly?
This issue is so important that party differences should be set aside to wipe away this blot on Parliament's record. The Parliamentary Ombudsman, PASC and High Court Judicial Review all say this is Government’s responsibility, but still the Government claims it has done nothing wrong. This attempt to over-ride our constitutional safeguards for ordinary citizens is completely unprecedented.
The recent extensions to the FAS are not enough and the victims have already had to launch another Judicial Review to prove this. The Government has already said it would like to find ways to pay the 90% PPF level to all those in FAS. The extra cost of doing so is around £20m a year, which is just a rounding error in the DWP budget. The amendments would simply force Ministers to provide a quick and fair solution, instead of waiting for more reviews. They will include all solvent employer schemes, pay from scheme pension age, allow trustees to pay straight away from scheme assets and encourage Government to find unclaimed assets to mitigate the extra costs to the taxpayer if it wants to. These amendments represent practical, workable proposals to deliver a fair solution quickly. The time for reviews and piecemeal changes to the FAS is past. Action is needed now!
Please support the Clause 18 amendments to Part 2 of the Pensions Bill, to set up a Lifeboat Fund to rescue all those who lost pensions between 1997 and 2005.
THE AMENDMENTS ARE DESPERATELY NEEDED TO OVERCOME THE INADEQUACIES OF THE FAS:
1. FAS is still not actually reaching those in most urgent need
2. FAS pays far less than PPF – much less than 80% of 'expected' scheme pension
1. FAS is not actually providing assistance – victims need the money now!
The Government has been promising to rescue these people since 2004. However, of the 10,000 people already past pension age, only around 1,000 have had any money at all and most of them are only getting the so-called 'initial' payments which are 25% below the FAS entitlement and only from age 65. The FAS will not allow any member to be paid until it has received detailed data which the trustees, in many cases, are simply unable to provide. As the trustees are not allowed to pay FAS benefits from the scheme assets, members are just left with no money. It is not much use saying they will receive arrears when all the FAS calculations are finally worked out, since many of them will not be alive by then. They need the money now. By contrast, trustees of PPF schemes pay members their full PPF entitlement as soon as they reach scheme pension age. Maxwell members were also paid as soon as they reached scheme pension age.
The Clause 18 amendments propose allowing trustees to pay immediately from scheme pension age, ensuring people are not left without their pensions any more and do not lose years of the retirement they paid for. The amendments would encourage Government to use scheme assets, rather than buying annuities, to mitigate costs to taxpayers and fund an emergency 'lifeboat' arrangement to ensure money is paid quickly, as was done with Maxwell. Unclaimed assets can then be collected, if the Government wants, in order to help fund this.
2. 80% is not 80%
The FAS does not pay 80% of members' expected scheme pensions. The 80% refers to a newly invented term called 'core' pension, worth much less than scheme pensions. The Government has simply stripped away important parts of members' expected pension to present a politically palatable scheme. FAS will actually pay about 60% of expected pension for most, only 30% for some, and far less than the PPF (which pays up to 90% with some inflation-linking). The FAS version of the members' "core" pension excludes:
i. Scheme pension age - this is not considered 'core'! There are many schemes where pension age was 60 or 62 (such as ASW and Dexion) but the FAS does not start paying until members reach age 65. Even women whose pension age is 60 receive nothing from FAS until 65. By contrast, the PPF pays from the scheme pension age.
ii. Tax free lump sum. Up to a quarter of the scheme pension (and PPF benefits) can be taken as a tax free lump sum, but FAS does not allow this. As all FAS payments are fully taxable, FAS benefits are taxed more highly than scheme pensions or PPF.
iii. Widows' benefits are far worse in the FAS than they would be in the scheme or the PPF. Final salary pensions include a five-year guarantee, but the FAS does not.
iv. All inflation-linking. FAS does not pay any inflation-linking at all. The PPF retains some inflation protection, but FAS payments decline in real terms every year, thus further reducing their real value below the expected scheme pension. The members' expected scheme pensions would have been at least partially inflation-protected.
The Pensions Bill Clause 18 amendments call for FAS to pay the PPF level of benefit from scheme pension age and retaining some inflation-linking. There is consensus that nothing less can be a fair solution. The Government will surely have to pay this in the end anyway, but why not just force a solution on reluctant Ministers now, instead of waiting for more Judicial Reviews, more suffering and more deaths. These amendments would deliver and fair solution that would signal the end of this fight for justice.
FINANCIAL ASSISTANCE SCHEME (FAS) MYTHS
The FAS is helping those in most urgent need
This is simply not true. There are already over 10,000 people past pension age – by definition they are the ones in most urgent need – but only about 1,000 of them have had any money at all from the FAS. The rest have had nothing. Many are now in their late 60's or 70’s, some battling cancer while still trying to work under terrible stress. The DWP is also deducting money from these people's state pension, because their schemes were contracted out, but many are not even receiving the full Guaranteed Minimum Pension (GMP) from their scheme. They would have been better off never joining at all. Maxwell's pensioners had their state pensions fully restored by the Government straight away. In this scandal, people have been living without even their full state pension for years.
The FAS will pay 80% of members' expected pensions
The amount paid out is far less than this. The 80% is political spin. The DWP has invented a new term called 'core' pension for the FAS. This concept seems designed to suggest that members will get 80% of their actual pension, but the so-called 'core' pension is much less than their scheme pension. For example, FAS only pays from 65, not scheme pension age, so members lose several years of their retirement income entirely; there is no inflation-linking; much lower widows' benefits; much higher taxation of FAS than scheme benefits. 80% of FAS 'core' expected pension is about 60% of their scheme pension for many and only 30% for some – especially widows.
The Government has put £8billion into the FAS
The reality is that the FAS has paid out just £4million since 2004 and has cost taxpayers nearly £10million to administer. The £8,000million (£8billion) is a statistically invalid ‘cash’ cost, worth just £1.9billion in real terms. And this will be reduced by tax paid on FAS and by means tested benefits not paid out. Furthermore, the money only needs to be paid on a year by year basis, so the extra annual sums required are about £20million.
FAS delays are all the trustees’ fault
No, the delays are due to the way the FAS has been designed. Although the trustees have money in the schemes that could pay all those past pension age, the FAS does not allow them to. In the PPF, trustees pay benefits as soon as each member reaches scheme pension age, so nobody lives without their pension. FAS trustees cannot do this.
Taxpayers cannot 'afford' to increase FAS to PPF levels
Changing FAS payments to PPF levels would require around an extra around £20m a year for 60 years. Official mistakes in benefits calculations cost taxpayers over £700m a year! This is certainly not 'unaffordable' in the context of public spending and anyway, scheme assets and unclaimed assets could be used in order to further mitigate the costs.
The Government has set up a Review to look at ways of increasing FAS, so just wait!
The review will not report until end 2007. In the meantime, the Government needs to commit to paying compensation at the PPF level that everyone already agrees is fair, rather than making the victims wait for yet another review. Many lost their pensions years ago. The Parliamentary Ombudsman, PASC and High Court verdicts were all in their favour, yet still the Government is resisting. The House of Lords has an opportunity to put this right. There is a chance to end this scandal once and for all, before more people die waiting for their pensions to be restored by a Government which promised they were safe.
PLEASE VOTE FOR THE LIFEBOAT AMENDMENTS TO CLAUSE 18 OF THE PENSIONS BILL
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DYNAMITE REVELATIONS - A DAMNING INDICTMENT OF GORDON BROWN’S RECORD ON PENSIONS
Press Release from Dr Ros Altmann 1st April 2007
The papers which the Treasury has been trying to hide for years, but which have now finally been released under the Freedom of Information Act, are a damning indictment of Gordon Brown’s record on pensions. Despite the denials, these papers prove that the Chancellor was warned of the damage that removing dividend tax relief could cause to pension funds, but carried on regardless.
125,000 final salary scheme members robbed of their pensions
Gordon Brown must accept responsibility for the pension losses of those whose final salary schemes have failed since 1997. It seems that from the moment he became Chancellor he set about the emasculation of UK pension funds and ignored warnings that his actions could undermine pension scheme finances. He never treated the risks seriously. His advisers said “we agree that abolishing tax credits would make a big hole in pension scheme finances” and “some schemes will be pushed into actuarial deficit by the loss of tax credits. The pensions industry can be relied on to parade these ‘bad news’ cases as proof of their arguments” as if these arguments would not really be valid.
Well, 125,000 people and their families are testimony to the fact that such claims were indeed valid. These people were mostly in smaller schemes and their employers either went out of business or decided to wind up their pension funds after dividend tax relief was removed. The advice the Treasury received ignored these smaller schemes altogether. “GAD have only looked at some of the very big schemes…Much of the data is quite old and GAD have had to use some rough and ready assumptions to update it. Also we do not know whether the performance of the very big schemes is typical of those at the smaller end”.
Of course, it was smaller company schemes that were least able to cope with the additional costs of replacing the lost dividend income. The Chancellor seems not to have given the members of such scheme due consideration.
It is simply not sustainable to blame contribution holidays or the stock market crash now that we know that the Chancellor’s advisers already warned him the tax change could plunge schemes into deficit (“The CT package will therefore use up the remainder of these surpluses and bring forward the time when contributions have to be resumed and increased”).
Ed Balls defends the 1997 policy decision by saying that it was “the best thing from the point of view of the long-term investment opportunities of the UK economy” and that the Government was responding to calls from the corporate sector to remove a distortion in the tax system that was encouraging them to pay out too much in dividends rather than investing for the long-term. So, because the CBI wanted a more favourable tax system for UK companies, the new Labour Government decided to sacrifice the interests of unsuspecting pension scheme members and personal pension investors.
This is the most unbelievable revelation. It seems the Chancellor was determined to pursue his own priorities regardless of the risks. Effectively, he either did not understand or did not care that taking so much money out of pension funds, with no warning and no chance for some to make up the resultant shortfalls, would damage the incomes of those saving dutifully for their retirement – as Government had always encouraged them to do.
The decision to remove ACT relief, despite the warnings, was highly irresponsible. Gordon Brown even rejected the option of phasing the changes in – for example reducing ACT relief by 5% each year for 4 years, rather than removing 20% all at once. Given the uncertainties surrounding the likely effects, it would have been far more prudent to take greater care before acting. The advice clearly states that officials are not at all sure about the outcomes. “After talking to the GAD we think that the likely outcome is that pension schemes should be able to cope with the change. But this is a judgment and there are risks” (emphasis in the original).
Pension funds are not just pools of money, they have people’s lives attached. Particularly in the UK, where the state pension is about the lowest of any developed country, a private pension is essential to avoid poverty in retirement. Governments in the past had relied on final salary pension schemes to provide generous pensions. Without these, the state pension could not have been cut to such derisory levels. That is why we had built up a brilliant retirement savings culture in this country. At a stroke, the Chancellor put that at risk, despite being warned of the consequences for pension fund finances (and knowing that lower income groups would suffer most).
Treasury defence of its actions not valid
The Treasury rejects any criticism of the 1997 decision to abolish dividend tax relief, on the basis that all the money removed from pension funds was recycled back in corporate tax cuts. This is not a valid defence. Cutting corporate tax rates does not make up for taking money out of pension funds. That is like saying that taking money away from John and giving it to John’s brother does not leave John worse off!
Pension fund assets are completely separate from the sponsoring employer. There is no automatic mechanism for employers to put all the lost tax relief back into the pension fund. In most cases they didn’t. And, of course, many companies who benefited from reduced corporation tax do not provide pensions at all, yet their gain was financed by ordinary people’s pension funds.
Furthermore, the ACT removal came just weeks after sweeping changes had been introduced in April 1997, which were designed to protect members’ pensions if their scheme wound-up. A whole new funding regime – the Minimum Funding Requirement (MFR) – had just been introduced and Gordon Brown was advised that removing dividend tax relief could undermine this new funding system. “some changes to the MFR approach may be required as a result of the CT package”. He just took no notice.
This cavalier disregard for the interests of pension savers has been a hallmark of pension policy since 1997.
I have no doubt that he will go down in history as the one who presided over the destruction of our once-thriving pension system.
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AS PPF STARTS PAYING ROVER PENSIONERS, EFFICIENCY OF PPF SHOWS UP CUMBERSOME BUREAUCRACY OF FAS. PPF SHOULD TAKE OVER FAS.
A PPF SOLUTION IS NOT ‘UNAFFORDABLE’ AT ALL. CUTTING OFFICIAL BENEFIT OVERPAYMENTS BY HALF WOULD COVER EXTRA COSTS IN UNDER TWO YEARS.
Press Release by Dr Ros Altmann 27th March 2007
The Pension Protection Fund (PPF) has just started paying MG Rover pensioners, bringing the total number of pensioners being paid by the PPF to 1393. The efficiency of the PPF operation contrasts sharply with the Financial Assistance Scheme (FAS), which is still only managing to pay 1013 people, even though about ten thousand should already be receiving their pensions and their schemes failed many years before Rover collapsed.
Even more importantly, Rover pensioners have been paid by the scheme trustees anyway, while waiting to be taken over by the PPF. By contrast, members past pension age in FAS schemes have been struggling without any pension at all, and even without some of their state pension, for years. They are not paid their full FAS benefit until their scheme has finished winding up. The Government’s fine words about billions of pounds being put into the FAS do not fit with reality. MPs and the public need to understand just how shamefully members of schemes outside the PPF are being treated.
Their trustees are not allowed to pay out even the FAS level of benefits from scheme assets. The cumbersome bureaucracy of the FAS is leaving these pensioners without anything. The suffering continues unabated, while all those in the PPF have at least had the PPF benefit all the way through. They have also had the certainty of knowing what they can expect in future, rather than the dreadful uncertainty of the FAS.
Why are FAS scheme members being treated so cruelly? As well as the 10,000 people who should be receiving FAS payments and are not, there are also others who need their pensions and have been excluded from FAS. Those who should have retired before age 65 are getting nothing and solvent employer scheme members are still left out totally.
Surely, it is time for a fair and proper resolution of this scandal. Why should people whose schemes failed before PPF – who had no warning that their pensions were other than completely safe – be treated so much worse than those who qualify for PPF?
No more annuities should be purchased, scheme assets that are available should be transferred to the PPF, to be run as a separate division by the efficient administration that has already been established there, rather than waiting for annuitisation and for the FAS bureaucracy to kick in.
Thousands of people who did nothing wrong, and prudently saved as Government advised, are left destitute while politicians try to defend the indefensible. The DWP has refused to accept the Parliamentary Ombudsman and PASC’s verdicts, even though the High Court said that ‘no reasonable Secretary of State could rationally disagree’ that there was maladministration.
John Hutton’s figures show that the cost of increasing FAS payouts to PPF levels is just £600million in net present value terms and some of the money will be recouped in tax payments and benefit savings. This is far less than the £725m cost to taxpayers of official mistakes made in one year by overpaying benefits to people who were not entitled to them. (Customer errors and fraud cost a further £1.5bn) If officials could cut their own mistakes by half, then the extra cost of providing a PPF solution to this problem would be recouped in under two years!
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PRESS RELEASE 21ST March 2007
Dr. Ros Altmann
MORE POLITICAL SPIN, HOW MEAN-SPIRITED CAN THE GOVERNMENT BE? STILL TRYING TO GET AWAY WITH THE MINIMUM RATHER THAN OFFERING A SOLUTION TO THIS DREADFUL INJUSTICE.
The Chancellor's announcement of yet another extension to the Financial Assistance Scheme (FAS) may sound good, but as has been the case every time so far, in reality it is nowhere near enough. Why is he being so stubborn in refusing to acknowledge the legal and moral responsibility to sort out this problem properly? How long do these people have to keep waiting for justice? Instead of offering a fair rescue package, he has announced a small improvement in the FAS. Today's announcement does nothing for most of those who are struggling without their pensions today. There are already 10,000 people past pension age who should be receiving money from the FAS, yet only about 900 have had any money at all. These 10,000 are the ones who need help, but today's announcement does nothing for most of them.
This is a classic example of the Government fiddling figures, trying to pretend it is being generous, but not actually sorting out the problem. Don't be fooled by the headline figures, it is smoke and mirrors.
The announcement today will mean that people currently in their 20's and 30's will eventually receive some of their pension back when they retire. It is welcome news that everyone will now be included in the FAS, and it is also welcome that the cap has been lifted to £26,000 a year and that those entitled to less than £10 per week will still be helped.
However, these measures will not help the people who are suffering now.
What have the victims of this scandal still lost after today's announcement?
- The FAS still only pays from age 65, but those who should have retired at age 60 lose 5 whole years of pension
- The FAS still excludes solvent employer scheme members , they have been totally abandoned
- The FAS still pays no inflation linking
- There is no tax free lump sum
- Widows' benefits in the FAS are far less than scheme benefits
- 80% of core pension is not 80% of "expected pension" - it is worth around 60%.
There is political consensus around paying all those who have lost their pensions at least the Pension Protection Fund level of benefits (i.e. 90% of their pension at retirement with at least some inflation linking) but general agreement that the Financial Assistance Scheme is inadequate. Yet all we have now is some tweaking to the scheme that even the DWP has admitted is not fit for purpose!
MPs need to hold their nerve and impose a just and fair solution on the Government.
Wouldn't it have been great if Gordon Brown had used this - his last budget, to rectify this dreadful injustice, instead of prolonging it!
The fight goes on. MPs will be asked to support amendments to the Pensions Bill to force the Chancellor to address this issue fairly and properly. So far it has refused to admit that it is actually responsible for what has happened here, yet it has had four guilty verdicts. It is now appealing to the Court of Appeal. How long will it keep trying to defend the indefensible? It will lose again in the Court of Appeal but meanwhile those affected are still suffering and dying in destitution, when they saved all their lives for a pension they were assured the Government had protected.
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Statement by The Rt Hon John Hutton MP, Secretary of State for Work and Pensions
Made in the House of Commons on Thursday 22nd February 2007
Comments on Mr Hutton’s statement by Dr Ros Altmann and Bindman’s solicitor John Halford are shown in Bold Italics.
First, it is important to appreciate the context in which this astonishing statement is made:
* the Government was made aware that people wrongly believed their pensions were safe over a decade ago;
* over a year ago, it was made aware of the Ombudsman’s conclusions, reached after a probing, 2 year investigative process; and
* over six months ago, it was made aware of PASC’s conclusions: that the Ombudsman was right and it was being naive at best and at worst misleading
So it should not come as a surprise to the Government that the Court has agreed with the simple issue at the heart of this case: the public was misled by government information and many suffered an injustice as a direct result. There is no need for time to think carefully about this. No independent body agrees with the Government’s stance. That is because it is untenable, “irrational” and one which “no reasonable minister” could maintain.
Second, there is absolutely no need, or good reason, to await a further court ruling or drag the scheme members through the appeal courts. Even if the Government disagrees with the judge on the issues of legal principle, it can pursue and appeal but nevertheless do the right thing now, out of respect for the Ombudsman, PASC and, frankly, the public: that is to accept it misled scheme members and commit to making arrangements to compensate them for what they have lost. That commitment can - and should - be made today. A Government capable of taking responsibility, manifesting leadership and, most importantly, treating workers with respect would not procrastinate further. Yet this one does.
Third, the government continues with the pretence that FAS addresses the underlying problem, notwithstanding the view of the Ombudsman, PASC and lately the ECJ that it does not. FAS is not compensation or restoration: it is a white elephant from which a few hundred people (out of tens of thousands) have receive a fraction of what they have lost. Its administrative costs are many times what it has actually paid out. FAS does nothing for solvent scheme members; nothing for those more than 15 years form retirement and next to nothing for widows. FAS strikes no kind of balance between the interest of scheme members and anyone else.
With permission Mr Speaker, I would like to make a statement on yesterday’s judgment on the Government’s response to the Ombudsman’s Report concerning the security of final salary occupational pension schemes.
Given the importance of this issue to many Hon Members, I want today to inform the House on the position we have reached - both in the light of this ruling, and the decision last month of the European Court of Justice on the implementation of the Insolvency Directive.
The High Court made five rulings in yesterday’s judgment. I will take each in turn.
The Court’s first ruling was that the Ombudsman was entitled on the evidence available to her to reach the conclusion that official information published on the Minimum Funding Requirement for pension schemes was inaccurate and potentially misleading and therefore amounted to maladministration. The Court particularly criticised the then Government's guide to the 1995 Pensions Act, published in 1996. This, it concluded, gave the clear impression that following enactment of the new law, scheme members could be reassured that their pensions were safe whatever happened.
The Government had, in good faith and acting on proper advice, taken a different view from that of the Ombudsman, on the basis that the leaflets concerned were not a full statement of the law and were for general guidance only. However, we now need to study the Court’s ruling on this matter very carefully. In particular, we need to consider the possible implications across Government of the Court's significant proposition - on which this particular ruling was based - that findings of fact made by the Ombudsman are binding, unless they are flawed, irrational, peripheral or there is fresh evidence.
The Court’s key ruling does not need further study. It is so clear a child could understand it: the Government publicised the benefits of occupational pensions schemes but not the main risk on wind up, so the public were misled. “No reasonable minister” could say otherwise, the Judge said. It was “irrational” for this one to do so. There is nothing hard to understand here. What is apparently hard for Mr Hutton – but inexplicably so – is accepting responsibility.
The Court’s second ruling related to the important issue of causation. The Ombudsman had found that maladministration was a significant contributory factor in the creation of the financial losses suffered by individuals. She went on to argue that everyone who between 1997 and 2004 suffered losses on the winding up of their pension scheme was the victim of injustice because of maladministration.
The Government had argued that this was not well-founded. The Court found in favour of the Government on this point, describing this aspect of the Ombudsman’s Report as being “logically flawed and unreasonable.”
This does not accurately summarise the Ombudsman’s key recommendation and past government practice- not least by the DWP – on providing redress for large scale maladministration. It is correct to say that the Ombudsman did not make findings in relation to each and every individual who had suffered loss on wind up to the effect that all of their losses were caused by maladministration. Yet it is plain from her report injustice – in the forms of a sense of outrage, lost opportunities to make informed choices or to take remedial action, and distress, anxiety and uncertainty – was caused by the government’s maladministration and that this was a significant contributory factor in the creation of the financial losses suffered by individuals. The question is what should be done to address that, given its scale. The answer is not to require each and every affected individual to prove causation in their case: that certainly would waste public money. Rather it is to set up a scheme which provides adequate compensation for all in the affected class, just as the DWP did in the inherited SERPS case, and other government departments have done routinely in similar cases.
As for the ruling, in fact the judge accepted that in many cases causation could be shown – he commented at para 70 that scheme members who had read the leaflets or relied on the advice of others who had done so clearly had suffered injustice caused by maladministration. This will be most scheme members.
The Court’s third ruling rejected the Ombudsman’s finding that the Government was guilty of maladministration when it made changes to the pension scheme funding rules in 2002. The Court decided that the Ombudsman’s finding was not logically sound.
The judge admitted he had not fully understood the Ombudsman’s reasoning and that she had access to far more evidence than he had, therefore, his conclusion is not as firm as other parts of the judgement, particularly his conclusion that no reasonable Secretary of State could reject the first maladministration finding. It is open to the claimants or indeed the Ombudsman, to put a clearer perspective to the Appeal court. But in any event, it remains the case that the government took a decision affecting the financial security of tens of thousands on the basis of a two line e mail. There is a political question, as well as a legal one, of whether that can ever be acceptable.
In its fourth ruling, the Court dismissed the claim that the Government’s refusal fully to restore the pension entitlements of all affected scheme members was in breach of the European Convention on Human Rights.
The Court’s fifth and final ruling concluded that I should re-consider the Ombudsman’s recommendation that the Government should consider making arrangements to restore fully the pension losses of the people concerned when their employers became insolvent.
This is NOT just about employers becoming insolvent. How many times will the Government ignore solvent employer scheme members? The PASC clearly highlighted this point, but Government keeps ignoring it. The reconsideration of the Ombudsman’s recommendations is the really important part and there is a clear need to do this very urgently. There is dreadful suffering here.
Mr Speaker, in a clear sign of both the complexity and importance of these matters, both sides have sought and been granted permission to appeal. We have not yet decided the precise grounds for such an appeal. It is absolutely right and proper that we take the time to study this judgment and consider its implications in detail.
How long does it take to understand that the Government has misled at least some people very seriously and that ‘no reasonable Secretary of State can rationally disagree’ with the Ombudsman’s conclusions of maladministration on the official information?
The judgment of the European Court of Justice in January on the implementation of the Insolvency Directive has an important bearing on the issue of financial redress for those who have lost some or all of their pension entitlement. The decision of the European Court of Justice effectively requires the Government to reconsider whether or not the present arrangements offer sufficient protection for people’s pensions when their employer becomes insolvent. The European Court of Justice has ruled that the system of protection which was in place before 2004 did not comply with the Directive, even taking account of the subsequent introduction of the Financial Assistance Scheme, albeit before its 2006 extension. We are therefore already reviewing the Financial Assistance Scheme with this finding in mind. It is now for the High Court to be asked to decide whether damages for breach of the Directive should be paid, taking account of the steer apparently given by the European Court of Justice that damages may not be payable.
This will take another two or three years and will not cover solvent employer scheme members.
Mr Speaker, the Government has already acted to provide substantial financial assistance to people who have lost pension rights when their employers became insolvent. The Financial Assistance Scheme, supported by £2.3 billions of public money, has been set up precisely for this purpose.
It is not £2.3billion – it is around £750million spread over 50 years and this figure does not take account of tax being paid on the money and benefits not paid to recipients, thus taking the net cost down even lower!
Throughout, we have always sought to ensure those who have suffered the most should receive financial assistance to mitigate their loss.
But they have NOT received this assistance. Enough of the spin. Enough of the false promises. There are thousands of people already past pension age and thousands more coming up to pension age who are not receiving a penny and have no idea when they will!
At the same time, we have sought to strike a balance with the interests of taxpayers who can not be asked to accept responsibility for effectively underwriting the total value of pension savings.
This is not what this case means at all. Here is a defined group of people who were misled into believing their pension schemes were properly protected when they were not. The Government knew they were not, but still told them in its public information, that they were.
In considering the right way forward, we are always prepared to consider practical proposals from all sides of the House.
I can confirm, Mr Speaker, that so as not to add to their financial difficulty, we will meet the costs of the applicants in this case so far - together with any costs associated with our appeal.
Mr Speaker, people who have lost their pension rights in these circumstances have suffered a great deal. My aim will be to return to the House with our conclusions and our proposals for how we should proceed - before the conclusion of proceedings on the Pensions Bill.
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Bindmans Press Release
High Court rules “irrational” pensions minister had no power to reject Parliamentary Ombudsman report
Pensions campaigners celebrated today as High Court Judge Mr Justice Bean condemned the Work and Pensions Minister John Hutton’s rejection of a Parliamentary Ombudsman report into occupational pensions as “irrational” and outside his powers.
The campaigners’ lawyer John Halford commented:
“the government had been caught red-handed in an act of constitutional vandalism intended to deprive thousands of working people of justice.”
The Ombudsman’s report found that DWP leaflets that had encouraged the public to join and stay in company pensions schemes were “maladministrative” as they had failed to mention the most important risk: that non-pensioner members would lose out if the schemes were wound up voluntarily or as a result of insolvency. When hundreds of schemes were wound up in the 1990s up to 125,000 people were left with a fraction of their pension, only then discovering that their money was unprotected. The Ombudsman went on to recommend that the Government should make arrangements to restore the lost benefits, describing its Financial Assistance Scheme (which to date has paid less than a thousand people) as inadequate. In March 2006 both her report and recommendations were rejected by Mr Hutton. In the first test case of its kind, that decision was challenged by four of the affected scheme members - Henry Bradley, Andrew Parr, Rob Duncan and Tom Waugh – all of whom belong to the Pensions Action Group.
Mr Justice Bean today ruled that rejection was unlawful and irrational, scathingly describing attempts to excuse the omissions in the DWP leaflets as “minute textual analysis” of a kind that:
“can in my view only give comfort to those who consider that it is unwise to believe anything one reads in a government publication. It is particularly ironic when applied to a leaflet whose back cover boasts that it has been awarded a Crystal Mark for clarity by the Plain English Campaign. PEC 3, especially page 15, gives the clear impression that following the enactment of the new law scheme members can be reassured that their pensions are safe whatever happens. I have no doubt that this is what it was designed to do. I agree with the Ombudsman that it was inaccurate and misleading.”
He added:
“I do not consider that it is necessary to go through each item of official information which was scrutinised by the Ombudsman. It is sufficient to say that in my view her finding that official information was “sometimes inaccurate, often incomplete, largely inconsistent and therefore potentially misleading” was well open to her on the evidence. Indeed, in the case of leaflet PEC3, I consider that no reasonable Secretary of State could rationally disagree with that view. I therefore quash the rejection by the Secretary of State of the Ombudsman’s First Finding of maladministration.”
The judge went on to hold that the minister’s decision not to consider restoration of the lost pension benefits would have to be reconsidered, as the political environment would be different once maladministration was admitted. He found against the campaigners in relation to their other arguments.
The campaigners are represented by John Halford, a partner at leading public law solicitors Bindman and Partners, who said today:
“The government had been caught red-handed in an act of constitutional vandalism intended to deprive thousands of working people of justice. Mr Hutton sought to take a sledgehammer to one of the most important checks and balances on government power: the independent Ombudsman’s ability to reach a definitive view on whether any citizen has suffered the effects of government maladministration. This Court has today stopped from taking place. Tens of thousands of people have awaited this ruling. They continue to suffer extreme financial hardship and the associated stress because they invested in pensions they believed were safe having been told as much by that very Department. That this case has to be brought at all is an absolute scandal. We hope the government will now – very belatedly - do the right thing by those it misled and offer meaningful compensation for what they have lost.”
Dr Ros Altmann of the Pensions Action Group said:
“So, there we have it. The Government must accept its guilt in misleading the public about the safety of their pensions. DWP denials of any wrongdoing have yet again been ridiculed. Will Ministers now agree to own up to their mistakes and pay proper compensation to those who have lost their life savings in pension schemes that the Government said were safe and protected by the law? So far, our shameless, heartless leaders have just ignored every wake-up call and prolonged this dreadful injustice. This is the third damning indictment of the Government’s behaviour over this pension scandal – a scandal created by Ministers who keep claiming that those who lost their pensions cannot be helped any more because taxpayers’ money has to be spent wisely, but who meanwhile vote themselves huge pensions at taxpayers’ expense.”
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Notes on the Judicial Review from Dr Ros Altmann
Overall, I do not feel that the Government put in a strong case and I cannot believe that the judge won’t find in our favour on at least one of the first three of our claims.
The legal team is also optimistic.
I hope, at least, that he will rule that the Government behaved unlawfully in rejecting the findings of the Parliamentary Ombudsman and that it must reconsider its position in light of the fact that it IS guilty of maladministration and is responsible for causing grave injustice that must be remedied. I also got the impression that he would not take too long to give his verdict, but we have to wait and see.
Detail:
The Judicial Review lasted three whole days and even then we did not manage to present our case orally on all the issues, but relied on the submitted papers for the Human Rights Act claim and for the analysis of the 2002 decision to change the MFR.
The first thing on Wednesday morning was an intervention on behalf of the Speaker of the House of Commons, who registered his concern about the use of information from the PASC debate and asked that neither party should not in any way include any criticisms of the proceedings from a Parliamentary Committee in their case. This is all unprecedented legal territory and he was citing Article 9 of the Bill of Rights from 1689 or something and after much legal mumbo jumbo our case started properly.
John comments that the intervention did us no harm at all: the court was at least told that the main parts of our case were matters for the Court, which undermined the Government’s argument that accountability for rejection of an Ombudsman report can only take place in the political arena.
Dinah Rose Q.C. presented our claim against the Government for the next day and a half. There are four strands to our case – I am summarising and probably not being legally precise, but this is how I understand our arguments.
1. That the Secretary of State has acted unlawfully in rejecting the findings of the Parliamentary Ombudsman. It is clear that the Government does not have to comply fully with any recommendations, (indeed the Ombudsman does not even have to make recommendations and did not do so in some reports, such as inherited SERPS) but it is not envisaged in any of the legal precedents or the 1967 Act itself that a Government would actually reject the findings. Unless the Government Judicially Reviews the Ombudsman’s findings, it is not entitled to simply ‘disagree’ with her. This argument was put in two ways: first, that the 1967 Act is similar to the 1974 Local Government Act (which established the local government ombudsmen) and under the latter regime the Court of Appeal has said the findings are binding; second, the Ombudsman regime is similar to those in the planning and immigration contexts where an independent body is appointed to establish the facts and, once they have done so, their view becomes the only rational one.
2. That the Secretary of State has also therefore acted unlawfully in rejecting both the findings and the first recommendation of the Ombudsman, because if he cannot reject the findings then clearly the rejection of the recommendation must be reconsidered, since it was rejected on the wrong premise.
3. Even if a Government might be able to reject the findings of the Ombudsman in certain circumstances, we claim that in this case, the reasons given for the rejection of her findings are so irrational and unreasonable that in any case this rejection is unlawful.
4. We claim that the Government has also broken Article 1 of the First Protocol of the European Convention on Human Rights, because by changing the law in 1997 it failed to protect people’s property rights properly and also is trying to confiscate members’ AVCs if they want to try to get their state pension rights back.
Dinah Rose Q.C. went through the relevant case law that we are relying on to demonstrate that Government is not entitled to reject the findings of the Parliamentary Ombudsman. There is a great deal of established evidence about the powers of Ombudsmen and she also went through the provisions of the 1967 Act which first established the office of the Parliamentary Ombudsman (it was introduced by a Labour Government by the way!) Of course, because no Government before now has ever rejected both the findings and the recommendations of its own Ombudsman, this case is unprecedented, so we had to rely on interpretations of other similar, but not exactly identical cases and of the original Act, in support of our claim. She made a very persuasive case.
She also went briefly through the facts of what has happened to each of the four claimants and explained how they relied on the information given to them by the Government, which led them to believe that their pensions were completely safe and their retirement income was assured. Then she explained that they had lost most or all of their pensions when their scheme had wound up, three of them when their companies went bust, but the fourth when his employer simply decided to wind up the scheme. She highlighted the inadequacies of the MFR and how members and trustees were misled by official information and even by misleading information from the Regulator – OPRA. She spent time also showing that the 1997 OPRA Guide was wrong and even the 1999 OPRA guide to the MFR, which did contain one sentence that might be considered correct, was, in totality also misleading because it clearly suggested that if your scheme was 100% funded on the MFR it would have enough assets to pay all its liabilities and that if it was, for example, 90% funded, it would be able to pay 90% of pensions and so on. Of course, as she pointed out, this 1999 MFR guide was never sent to scheme members and, indeed, it was not even sent to all trustees. Nor did it contain anything that highlighted the error in the 1997 MFR guide for trustees. In particular, Bob Duncan – a member nominated trustee of his scheme and Amicus union convener - only received the 1997 Guide and never had the 1999 OPRA booklet, so he relied on the wrong information from the Regulator to reassure all members of the BUSM scheme that their pensions were safe, even if the scheme wound up.
She explained how the Secretary of State’s assertions that nobody was entitled to be misled by official information, given the circumstances of the time, were simply not rational. It was obvious that people may have been misled and that they had not been given the full information they needed to assess the security of their pensions, because the official information had not told them the one most important question they should ask their trustees. Even after warnings from its own and other actuaries that members and trustees did not know the risks that even schemes fully funded on the MFR entailed for non-pensioners if their scheme wound up, the DWP did not change its official leaflets to tell members that they might not get their full pension if their scheme wound up and that they needed to ask how wind up might affect them individually.
Towards the end of the second day, Thursday, the Government’s defence barrister – Philip Sales Q.C. – began his submissions on behalf of the Secretary of State. His case could be summarised as follows:
1. The local government and parliamentary ombudsman schemes are fundamentally different. It is wrong to separate the findings from the recommendations in the Parliamentary Ombudsman’s report and the whole report has to be considered together. Clearly recommendations cannot be binding. Because of that, it is clear that Parliament does not expect the report as a whole to be binding on Government and, if the report constitutes both the findings AND the recommendations, then the Government must be able to reject the findings.
2. The Ombudsman regime is not similar to those in the planning and immigration contexts where an independent body is appointed to establish the facts because she does not hear oral evidence like a judge, where there is an opportunity for cross examination. The Ombudsman’s investigation is not a comparable way of testing what happened to the claimants or what actually occurred. Mr. Sales suggested that the Parliamentary Ombudsman does not conduct adversarial interviews with the complainants and does not even meet them herself, so her judgment of what happened to them may be flawed. He said the Government had not had the opportunity to test the claimants itself, so it should not be bound by the Ombudsman’s opinion! (Again, this is such an insult to the Ombudsman that I could hardly believe what was being said).
3. The Secretary of State is just as entitled as the Parliamentary Ombudsman to have his own view on what constitutes maladministration and there is room for two views of whether it has occurred or not, both of which are rational. There is no definition of maladministration in the 1967 Act and therefore the Minister is perfectly at liberty to disagree with the Ombudsman.
4. Just because the DWP did not stick to its own standards and guidelines, does not mean it is guilty of maladministration. That is something far more serious. Indeed, Mr. Sales said that these internal guidelines were really just ‘aspirations’ of ‘best practice’ but failing to meet them is not something so terrible. He also said, after questioning from the Judge, that even if the DWPs actions fell below ‘reasonable standards’ it would still not be guilty of maladministration, unless the Secretary of State thought so! (This statement nearly made me fall off my seat.)
5. By accepting her recommendation, this would be a huge public spending commitment and the Courts should not be expected to interfere in matters of public expenditure, so they should not give a judgement on the report. What happens next is exclusively a matter for Parliament.
So many aspects of the Defence case seemed to me to be outrageous. Mr. Sales said that people who felt they had lost out due to maladministration should have complained to the DWP using its own Departmental scheme for maladministration! Well, excuse me, but the DWP has refused to admit it is guilty of maladministration, so how can anyone achieve satisfaction that way? Not only that, but the suggestion here is that only the DWP itself can assess properly whether it is guilty of maladministration – and that the verdict of the Ombudsman does not count. Indeed, this argument is undermined – as Dinah Rose pointed out - by the fact that, if people do complain to the DWP scheme and are not satisfied with the outcome, they can complain then to the Parliamentary Ombudsman! So even the DWP admits in its guidance that the Ombudsman is a higher authority on maladministration than the Minister.
To suggest that the Secretary of State can judge his own department’s behaviour at least as well as the Ombudsman is effectively saying Ministers can be their own judge and jury and that a 16 month independent investigation, collecting mountains of evidence, conducting detailed interviews and assessing all the facts from an impartial standpoint is not going to come to a better conclusion than a Minister who was not even there at the relevant time and has not looked impartially at the situation. In essence, what is going on here, in my view, is that the Ombudsman has kept trying to explain to the DWP that its information misled people, but the DWP keeps saying it did not and that nobody was meant to rely on the materials or assurances. (My comment: Well, the fact is that they did and the DWP should have recognised at the time that they would!)
Then Mr. Sales tried to argue that the official information leaflets were not deficient because they were just general introductory guides and could not be expected to cover matters such as the MFR and wind-up. He said the MFR and wind-up were dealt with in other materials which should have been read and these should have corrected any misleading impressions they had. In particular he relied for this on two things.
Firstly, the 1999 OPRA MFR Guide (remember this is the one which we have argued was also misleading and which was not sent to all trustees. Bob Duncan never received a copy. In fact only 40,000 copies of this guide were printed, but about 160,000 copies of the incorrect 1997 guide were sent out).
Secondly, he said the 2000 Consultation document sent to the actuarial profession and members of the pensions industry, also explained the inadequacies of the MFR, so members must have known about this and can’t say they were misled. Again, this line of argument is quite astonishing. The 1999 MFR guide was not even mentioned in the DSS/DWPs own introductory leaflets. Readers were just told to read their scheme information or other DSS/DWP guides, or FSA materials (which, as you know, contained the reassurances about final salary pensions being ‘guaranteed’). In other words, the defence was arguing that, as long as the information sent to the professionals in the pensions industry was right, the fact that the information sent to the general public was not correct does not matter and this is not maladministration. (I could not believe my ears and I felt the judge was pretty unimpressed too!)
It would take me far too long to go through everything, but I hope I have captured the gist of the arguments put forward. One final thing that was just unbelievable was that, at 2pm on the final afternoon, right at the end of the case, the Defence submitted a several page document which criticised the four claimants’ statements and suggested that they had not been telling the truth and their version of events could not have been right! This was the most unbelievable aspect of all the startling things that happened in this case. Having had these four Witness Statements since last June, having never once complained about them or even commented on them, not in their Skeleton argument or even at the beginning of the case, they suddenly produced a document which pulled their evidence to pieces. I do not have a copy but Bindmans do. I gave them my copy with my comments on it, but we asked the judge not to accept the document as it had been produced so late and we had had no chance to consider it. The judge said he would accept it, but not take too much notice of it! I hope that is what happens and cannot believe they felt able to submit such a document at the end of the case.
John Halford (our solicitor) comments that it is very unlikely this document will carry weight with the judge because he said that it should have been included in the Government’s arguments weeks ago, he recognised we could not practically respond and said in terms that the lawyers should not worry about trying to do so over the weekend.
Overall, I do not feel that the Government put in a strong case and I cannot believe that the judge won’t find in our favour on at least one of the first three of our claims. The Human Rights point was not discussed in court at all, by either side really, so the judge will look at that one purely on the papers and I have no idea what he might say on that, though John comments that this is not the strongest limb of our case and so the decision not to prioritize it in court was certainly the right one.
I hope the judge will rule that the Government behaved unlawfully in rejecting the findings of the Parliamentary Ombudsman and that it must reconsider its position in light of the fact that it IS guilty of maladministration and is responsible for causing grave injustice that must be remedied. I also felt that he would not take too long to give his verdict, but we will have to wait and see.
I think the lawyers did an excellent job in presenting our legal arguments and hope that Dinah Rose, John Halford and Tom Hickman will be rewarded for their efforts with a positive verdict and that all those who have waited so long for justice will soon receive the outcome they so much deserve!
Ros Altmann
10th February 2007
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Amicus Press Release
Unions win landmark pensions case
Thousands of workers are celebrating today after the European Court of Justice (ECJ) ruled that the UK government has failed to properly implement European law and so could be entitled to full compensation for their lost pension savings.
In the case brought by Amicus and Community unions on behalf of 1,000 members formerly employed by Allied Steel and Wire (ASW) in Cardiff and Sheerness, the court found that successive UK government's have failed to properly implement the European Insolvency Directive which should have been in effect since 1983.
Now the UK courts could rule that workers should be fully compensated for losing all or substantial parts of their pensions after their employer's went bankrupt. The case now has to be referred back to the UK High Court which will decide if the breaches are significant enough to make the government pay full compensation to thousands of victims of company insolvency.
Derek Simpson, Amicus' General Secretary, said today: “This judgement vindicates our decision to take this case all the way to the ECJ. We have consistently said that we will defend our member’s rights on pensions and this case demonstrates that successive governments have failed workers who have heeded their advice to save for their retirement.
“We are confident that when this case returns to the UK High Court, our arguments will be upheld and our members who, through no fault of their own, lost all or substantial parts of their pensions, will be fully reimbursed. It is also a vital judgment in restoring people’s faith in the pensions industry. In order to save sensible and throughout their working lives, people need to be reassured that their money is safe."
The outcome of this case could also have a bearing on the Pension Protection Fund (PPF) set up by the government to protect workers' occupational pensions in cases of insolvency. Currently PPF is not retrospective and only covers people affected from May 2005 onwards. It also sets limits at 90% of people's lost pensions and a cap of £26,000 which could be deemed illegal.
In the region of 125,000 workers are thought to have lost their savings through the insolvency pension’s trap.
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Community Press Release
ECJ says UK Pension Protection Measures “unlawful”
The European Court of Justice (ECJ) has today ruled that current UK measures to protect the expected pensions of members of occupational pension schemes in the event of their employers' insolvency are unlawful and fail to meet the requirements of Article 8 of the Insolvency Directive. The case was brought by Community and Amicus unions on behalf of their members formerly employed by Allied Steel and Wire (ASW) in Cardiff and Sheerness.
Welcoming the judgment, Michael Leahy, General Secretary of Community - the union that represents over 95% of the ex-ASW employees, said:
"I am glad that the ECJ Judges have ruled that current UK measures to protect the expected pensions of members of occupational pension schemes in the event of their employers' insolvency are unlawful and fail to meet the requirements of Article 8 of the Insolvency Directive. This is what we have argued all along.
"This is a story of political failure by successive Governments. The Tory Government failed to implement the Directive properly and the Labour Government, whilst setting up the Financial Assistance Scheme, has failed to right the wrongs of the past. People will only have confidence in the UK pensions system going forward if those who have lost them their pensions through no fault of their own have them restored.
"The ECJ has clearly identified that current UK measures are unlawful. I do not believe that we should have to have recourse to the High Court - during which time our ASW members would have to endure further financial hardship - whilst waiting for the Government to accept its legal responsibilities. I believe that the Government should end their misery and admit its legal responsibility now.
"If the Government is not willing to recognise their legal responsibility and settle this matter then Community is ready to launch a parliamentary campaign to convince them to do so. I am delighted to be able to announce that Julie Morgan, Labour MP for Cardiff North, who has many ex-ASW employees amongst her constituents has agreed to table an amendment to the Pensions Bill currently before Parliament, to make the Government meet its legal responsibilities to the estimated 125,000 people similarly affected. Community will be contacting MPs of all parties and asking them to support the amendment and end this scandal once and for all."
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To All Supporters of the Campaign for Pension Justice
Saga fully supports the Pensions Action Group and will continue to do so until a satisfactory solution is found.
We are campaigning in and out of Parliament to obtain natural justice for the victims of the failed pension schemes.
We applaud the action being taken to take the Government to a judicial review of its rejection of the Ombudsman’s recommendation that you should be compensated. It is an indictment of the attitude of the Government that you have to go to such lengths for justice. Nevertheless, we wish you well. Meanwhile we have written to the Minister concerned (James Purnell) to urge him not to reclaim Government’s costs should – heaven forbid – the action fail.
Saga’s petition on our website shows the substantial and growing level of support amongst the population at large for the Action Group.
Saga is confident that the merits of the case, reflected in the unequivocal verdict of the Ombudsman, and backed by your determination and passion, will ultimately see proper justice done.
With all best wishes,
Tim Bull,
Director, Saga Group
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Letter sent to Gordon Brown & Tony Blair by Dr Ros Altmann
I am writing to you today on behalf of the people who have lost pensions they were told – by your Government – were safe and protected by law.
The Government’s position on this matter is totally unsustainable. The Parliamentary Ombudsman and Public Administration Select Committee have both clearly shown why the loss of retirement security is directly the fault of the Government.
The issue does not revolve around the schemes, it is all about the members of those schemes. The fact that the schemes have failed is not the issue, the problem is that, when the schemes failed, they did not have sufficient assets to provide members’ pensions and there was no protection for them on wind-up, even though they were always assured – by Government – that they were properly protected. This is simply wrong. It is official ‘mis-selling’ of pensions and it is the laws governing wind-up (which are, of course, the responsibility of Government) which have taken their money away from them and removed all trustee discretion so that the assets could not be divided fairly. Trustees are, therefore, not responsible for member security on wind-up, it is the Government that is responsible for this and it has failed to live up to its promises on this. In other countries, when such pension schemes failed, members did not lose their pensions because they were properly protected. It is the UK framework that has let them down, but gave them no warning of the risks they faced and denied them any chance to protect their retirement income.
Please think again quickly on this issue and show that New Labour is about more than just spin and empty promises. This is a matter of natural justice and common decency. Maxwell pensioners – who lost out because of fraud – were rescued within a few weeks. These people have been left for years, even though their losses were caused by the Government.
I implore you to commit to compensating those affected and to admit that the Government let them down – please do the decent thing here.
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What would Britain be like under Gordon Brown?
What are his ‘values’ and what does he stand for?
Dr Ros Altmann speaking in Manchester at the Pensions Action Group News Conference
For the 4th year in a row, the Pensions Action Group has come to a Labour Party conference to highlight the failings of New Labour.
Yet again, representatives of over 100,000 people are demonstrating because they have been ‘Stripped of their Pensions’ by the Government. This year the case is even stronger.
The Parliamentary Ombudsman and Public Administration Select Committee have categorically and unequivocally determined that the Government is guilty of letting these people down, yet Ministers have just dismissed the verdict
Saga has stepped in to publicly back this campaign and we are enormously grateful for their support
This matter is not just about a few leaflets and is not just about schemes winding-up underfunded. It is about members who have been dreadfully wronged by a pension system they trusted, but which has taken their money away under false pretences and left them with little or nothing. This should never have happened and society owes it to these good people, who play by all the rules, to pay proper compensation immediately, as the PO and PASC investigations concluded
Government maladministration is clearly responsible for the effect that scheme wind-up has had on these members’ pensions and their lives. As the PO said, ‘it’s maladministration, get over it’ and let’s get on with sorting out a solution. But the Government is still in denial of the obvious truth.
So what does this Government stand for? The Chancellor talks about his ‘values’ – what does this situation say about those values?
Does he stand for social justice? Seemingly not. This is probably the biggest social injustice of our time and remains so even after years of begging for justice What about fairness? – No. These people have gone through all the proper constitutional procedures in their search for justice, but the Government has just over-ridden due process. This is clearly unfair
What about honesty and integrity? – No. The Government did not tell members the truth, misled them dreadfully and now refuses to face up to the consequences of that betrayal of trust. In its response to the PO report and evidence to the PASC, the Government has still not told the truth. It tried to pretend the costs of compensation would be £15bn, then finally had to admit the real cost would be about £3bn and only over 60 years. Mr. Hutton insisted Government leaflets were not misleading because they were not aimed at scheme members, but they actually state in the back that they are designed for scheme members!
Does he believe in playing by the rules – Well only if he make the rules and likes them! These people did everything society asked of them and did what successive Governments urge us all to do, yet they are now being punished for it. We have rules in place to stop Governments causing injustice, but this Government has just ignored all those rules and thinks it can do as it pleases
Does he really want to restore trust in politics and politicians? I hope so. But unless politicians start upholding Parliamentary processes and common decency, and stop trying to get away with lies and spin over this issue, no-one can trust politicians. Everyone can see that the Government is responsible for these people’s plight and its continued denials of the clear evidence only serves to further undermine confidence in politics.
But I don’t want to get into the personal blame game. I want to look forward. To find a solution. The person who has the power to put this right is the Chancellor. He controls this aspect of Government policy. We want a clear, simple solution from him – not a complicated play on words. The Financial Assistance Scheme is a sop to pretend to backbenchers that something is being done, but has merely compounded the injustices.
No more spin!
This is a test of Gordon Brown and whether he has it in him to lead this country – is he up to the job?
We will all be watching to see whether he steps in to uphold the British values of justice, fair play, decency and Parliamentary democracy. Or whether he doesn’t really care.
I hope he rises to the occasion for the sake of the Labour Party and for the sake of this country
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Letter from Saga
The following letter has been sent from Saga director Tim Bull to Pensions Minster James Purnell. If you have not already done so, please sign the Saga petition, details are on our home page. The Pensions Action Group thank Saga for their support.
Dear Mr Purnell
Compensation for members of occupational pension schemes wound up between 1st January 1997 and 5th April 2005
As you will be aware, Saga is the UK’s leading organisation specialising in providing services to people aged 50 and over. We have around 4 million customers of our financial services and travel businesses, readers of the Saga Magazine and listeners to our regional radio stations.
Saga Magazine is read by over a million people every month. In our August edition, the regular, and very popular, financial section included an article about the estimated 125,000 people who lost much or all of their accrued pensions rights as a result of occupational schemes being wound up. We always receive feedback on articles from readers but in this case we were taken aback by the quantity and quality of letters and e-mails received. Some correspondents have been personally affected, and the disappointment and distress at the loss of pensions built up over many years comes through very clearly. Many others have not suffered themselves, but make the case that justice is not being done for the victims.
Saga has no alternative but to support the very strong opinions voiced by our readers.
Our correspondents, in a great many cases, have been members of and contributors to schemes for many years. They have done what successive Governments have desired and actively encouraged : planned and saved for their own retirement. The losses that they have suffered, or will suffer, have not been due to profligacy or poor choices, but systemic failures in a system which they were assured, post-Maxwell, was now secure.
In such circumstances, it seems to us, to our readers, and the vast body of public opinion wherever canvassed, that the country should “do the right thing” by compensating scheme members for these losses. Issues of blame or liability are frankly irrelevant; the phrase we are hearing time and time again is “natural justice”. In total, the sums involved, though not trivial, are eminently affordable, will spread over 60 years, and will be offset to a large degree by tax payments and savings on benefits or pensions credits that will otherwise be claimed.
We further believe that this case has relevance well beyond the 125,000 who have already lost out. The point is succinctly put by one of our readers :
After 25 years in a final salary scheme … it was wound up. I have been informed I can expect 10% of my entitlement – this is an outrageous injustice. How can anyone have confidence to save in a pension.
Recent reports suggest that 2 out of 5 workers do not save for their pensions. The Turner Report demonstrated the need to change this trend, going as far as to call for a universal occupational scheme. We support Lord Turner’s report and are pleased that Government’s White Paper is taking up many of his recommendations. However, the success of pension reform will be undermined as long as there are cases like this, examples that persuade many ordinary working people that saving for retirement is not worth the cost, or the risk.
Saga welcomed the Financial Assistance Scheme, but we believe that it must now be replaced or substantially amended. There can be no justification for the limited proportion of accrued entitlements to be reimbursed, or the arbitrary limits on those who qualify for assistance. But most importantly, Government must act immediately to speed the process, to get financial assistance into the hands of those who most need it, the members who are already past retirement age. In your evidence to the Work and Pensions Committee, 28th June 2006, you said that more than 7,000 of those affected were over the age of 65, yet your expectation was that within 6 months the number in receipt of assistance would only rise from “about 100” to “not far short of ten times that number”. During the same 6 months, again using your own figures, a further 2,000 people will have reached the age of 65.
The stress and consequential ill health caused by the failure to act swiftly is seen by Saga customers as a disgrace.
Saga’s website is highlighting this issue and providing an opportunity to sign an on-line petition calling for compensation for these victims. It is receiving hundreds of visits every day. We will continue to cover the subject in our magazine, and we intend to support the activities of the Pensions Action Group as it seeks to build further support. In the Autumn we plan to present the petition to yourself, the Secretary of State.
Saga calls for :
* Immediate action to accelerate assistance payments to all those affected scheme members over the age of 65; followed by
* Replacement of the limited assistance scheme with one which makes full restoration to all affected members of their expected accrued pensions entitlements
We believe this to be a just and affordable course of action. It would be action our readers would want and expect to see from a Labour government, and would signal its determination to restore confidence in saving for retirement and the future expansion of pension membership.
Yours sincerely
Tim Bull
Director
Saga Group Limited
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PRESS RELEASE from Dr. Ros Altmann 31st July 2006
MPs SLAM GOVERNMENT’s REJECTION OF PARLIAMENTARY OMBUDSMAN REPORT – DEMAND COMPENSATION MUST BE PAID
The Parliamentary Public Administration Select Committee (PASC) has released a damning verdict, criticising the Governments rejection of the Parliamentary Ombudsman ‘Trusting in the Pensions Promise’ report and effectively threatening a Parliamentary rebellion if Ministers do not change their stance on this issue. The Committee offers no support whatsoever for the Government’s position and demands that a proper compensation scheme must be put in place urgently.
It also expresses concern about what it sees as worrying recent trends for this Government to think it can reject independent reports which criticise its actions ‘with impunity’. It suggests that Government departments focus on denying any wrongdoing – even in the face of clear evidence – rather than trying to remedy the injustices they have caused. The PASC cites not only the DWP, but also the Treasury (Inland Revenue) which has rejected criticism of tax credits and the Home Office.
The PASC report is another unequivocal indictment of the Government’s handling of this occupational pensions scandal and the Committee is clearly outraged by what has happened and appears determined not to let the Government get away with it.
Journalists may also be interested to note that the PASC report states that the Government not only misled scheme members, but that the lack of honesty with which Government described the protection for final salary occupational pension schemes in its press releases, statements and official information, also misled the Press. This meant that journalists were given a false impression, so that may have misled the public too. It is surely vital that journalists can rely on information they are given.
The Government now has the chance, yet again, to reconsider its handling of this situation, which the PASC says has caused ‘outrage’ and to review its rejection of the Ombudsman’s findings of maladministration, which the PASC calls ‘unsustainable’ and ‘untenable’.
The victims of this huge injustice have waited for years and are still waiting for justice. It is to be hoped that MPs from all parties will now unite behind the Parliamentary Ombudsman and their fellow MPs on the PASC, to force the Government to organise a proper compensation scheme, to replace the discredited, hopelessly inadequate Financial Assistance Scheme.
The Pensions Action Group will proceed with its Judicial Review of the Government’s unreasonable and unlawful response to its own Ombudsman, and the report from the PASC should prove very helpful in strengthening the case still further. We hope, however, that the Government will agree to remedy this injustice without needing to go to Court.
NOTES:
Over 100,000 people have lost some or all their occupational pensions when their schemes wound up. The Parliamentary Ombudsman conducted a 16-month detailed independent inquiry and found that the Government is responsible for the injustices suffered by these victims and that it should organise a compensation scheme urgently. After Government rejected the Ombudsman’s report out of hand, the Public Administration Select Committee conducted its own investigation and has just published its conclusions, giving new hope to the victims of this situation.
The following excerpts from the PASC report show the strength of feeling among the Committee members – many of whom are Labour MPs. These quotes are worth reading:
Government misled the press, preventing accurate reporting
‘The general impression was given that occupational pensions were now safe. Moreover the impression given by the Government influenced the wider press reporting on these matters, which in turn led to the perception that saving through occupational pensions was not merely financially advantageous but was in effect risk free’(p9)
‘The Government’s failure to provide clear information was one of the chief reasons why there was ‘a general sense out there’ that defined benefit occupational pensions were absolutely, rather than relatively, safe.’ (p18)
PASC issues veiled threat of backbench rebellion if Government stance continues
‘We trust that this report will act as a warning to Government’ (p32) ‘If necessary we will seek a debate on the floor of the House’
‘The Government has recently been too ready simply to reject findings of maladministration apparently without proper study of the Ombudsman’s reports’
‘The series of rejections of Ombudsman’s reports is deeply troubling… the more so since such responses are not decided by departments on their own, but are raised in discussion across Government’ (p29]
PASC rejects Governments attempts to deny maladministration:
PASC says of Government’s defence that people should not have relied on its leaflets: The Government’s claim that those reading the information would realise that they could not rely on advice given by the leaflet is untenable (p11)
PASC says of Government’s suggestion that the leaflets made clear people needed to take proper advice: The references they made to independent financial advice did not suggest that this was desirable, let alone necessary, and were cast in a way which would discourage rather than encourage the reader to seek it (p13)
PASC says of Government’s claims that trustees had primary responsibility both for ensuring schemes were properly funded and for communicating with their members: This line of argument is unsustainable…The fact that others have responsibilities does not mean the Government need not take its own role seriously. (p17) Trustees had no power in law to insist on additional funding above the MFR level (p17)
PASC says of Government’s claim that it should not have been expected to explain the inadequacies of the MFR in general guides: In our view the nature of the MFR is not a matter of specific and detailed advice: it goes to the heart of the legal framework intended to protect pensions at that time. (p14)
Government attempts to put the blame on trustees are not accepted: It was not just for trustees to inform about the MFR ‘The Government should have been aware that the Minimum Funding Requirement was not properly understood by scheme trustees, let alone scheme members…Government should have realised that more clarification was required. (p15)
Committee insists Government must accept it is guilty of maladministration:
‘This is clearly maladministration’. (p33) ‘The fault lies with the Government not the Ombudsman’ (p34) ‘Government’s handling of the response caused outrage’ (p29)
‘It is maladministration, get over it and let us get on to engagement with the real issues here’.
‘By concentrating its energy on denying findings of maladministration rather than on considering what remedies might be practical and proportionate, the Government has caused further distress to complainants’(p3)
‘We believe the Government is being, at best naïve, and, at worst, misleading’ (p33)
This is not just employers going bust – it affects solvent employer wind-ups too:
‘The Government cannot simply abandon such people, if it is impossible to make employers take responsibility, then it should do so itself ‘(p24)
The decision to weaken the MFR should have considered the effect on solvent employer wind-ups – ‘Government did not take account of all the implications’ (p19)
The facts of the case:
‘It was not obligatory for the Government to provide general information about pension schemes but, if it chose to do so, it was duty bound to ensure that information was complete and accurate’ (p9)
‘A proper level of accuracy in Government information should be a basic principle of good administrative practice. For many years, the information provided on occupational pensions fell far short of this and of the Government’s own standard.’
‘There will be risks and hard choices involved in all investment decisions, including those about pensions. The Government’s role should be to educate people about those risks’ (p17)
‘Scheme members were led to believe their pensions were entirely safe. They did not have the opportunity to save in other ways and suffered heavy losses when their schemes wound up (p5) …denied information, scheme members continued to make additional voluntary contributions which proved worthless. (p21)
‘We agree with the Ombudsman that the false sense of security it produced meant that scheme members did not take steps to spread their risks. If official information had been adequate, members might have been able to reduce their losses’ (p20)
Government must organise a compensation scheme, not wholly taxpayer funded
We believe the Government should look again at what can be done. We want a response that is not about defensiveness and denial…We expect the Government to work with others to put together a significant package of support…compensation, indexation and security for dependents benefits’ (p25)
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13th July 2006 PENSIONS ACTION GROUP FIGHTS FOR ALL THOSE AFFECTED BY PENSIONS INJUSTICE
UK PARLIAMENTARY OMBUDSMAN’s CLEAR UNEQUIVOCAL VERDICT MUST BE UPHELD – WE DON’T NEED EUROPE TO SORT OUT OUR PROBLEMS, WE CAN DO IT OURSELVES!
In response to the Advocate General’s announcement in the ECJ Dr Ros Altmann says: ‘We would like to reassure people that the EU judgment will have no bearing on our fight to remedy this huge social injustice. The Parliamentary Ombudsman’s report clearly showed the Government is responsible and we call on all MPs and trade unions to press the Government to uphold her report. The problem is not insolvency, it is the wind-up of a scheme. Many workers lost their pensions even when the employer stayed solvent.’
We understand how disappointed ASW workers will be that the European Advocate General has not found in their favour but that will not stop the fight for pensions justice. The Pensions Action Group represents every worker who has lost their pension between 1997 and 2005 including those in solvent employer schemes who would not have been covered by the EU Insolvency Directive anyway.
The Parliamentary Ombudsman’s independent 16-month inquiry found that the UK Government is responsible and should organise compensation for those affected. MPs who asked the Ombudsman to investigate should now press the Government to comply with her report.
The rules of wind-up and the inadequate oversight of the funding regime for UK final salary pensions are the fault of the UK Government and no-one else. In addition, the Ombudsman’s report showed that maladministration by successive Governments was also the cause of people being unaware of the wind-up risks, because Government was not honest with the public. Official information – which Government itself chose to issue (it did not have to) encouraged people to join their employer scheme and told them their pensions were safe, while failing to mention the risk of wind up which Government rules had created. Effectively, the Government mis-sold these pensions to the public and must compensate for their losses.
This is a problem which the UK Government has created and it is one which MPs must force the UK Government to put right.
We don’t need to go to Europe to sort out our problems, the Parliamentary Ombudsman has shown MPs the way here. If MPs believe in social justice, fairness and decency, they will pressure Ministers to own up to their mistakes. So far, the Government’s rejection of the Ombudsman’s report is a disgrace. Mr. Hutton’s statement in Parliament, denying any wrongdoing, contains factual inaccuracies and is not honest. The Pensions Action Group will proceed with a judicial review of the Government’s response, if the DWP does not admit its mistakes and agree to compensate properly for the damage it has caused.
Social justice and fairness are at stake, as is the integrity of our Parliamentary constitution. Not only this, but if we are to have any hope of restoring confidence in pensions and in Government’s word, this issue must be resolved. We call on all MPs to protect the rights of their constituents, in the face of a Government which is trying to walk away from the damage it has caused. Will MPs stand up for what is right or let Ministers get away with dishonest behaviour?
NOTES
1. Between 75,000 and 125000 people have lost some or all their pensions when their company scheme wound up.
2. The Government removed dividend tax relief from pension schemes in 1997, which took money out of the funds and also drained liquidity from the stock market, thus worsening financial losses for pension scheme members.
3. The Government introduced new rules for pension scheme wind-up in 1997 and resulted in workers’ pensions becoming far less secure than they were before. The law interfered with these schemes and has over-ridden trustee discretion.
4. It was not trustees who were responsible for the wind-up of the scheme, or the rules of wind-up, it was the Government. The unfair priority order, which prevents trustees from dividing the assets fairly, the inadequacy of the funding regime and the framework of pensions policy in the UK – all of which are Government responsibility - caused the losses.
5. The Government always assured the public that the Minimum Funding Requirement would ensure sufficient funds in schemes to pay accrued pensions on windup – that was supposed to be the original policy intention.
6. In reality, however, the MFR started off too weak (because, behind the scenes, the Government designed it only to give workers a 50/50 chance of actually getting full pensions if the scheme wound up). The MFR was allowed to weaken significantly from the initial level, while Government ignored the implications of this for member security on wind-up.
7. The Parliamentary Ombudsman showed that this maladministration puts a clear responsibility on Government to compensate those who have lost their pensions in what they were always told by the Government were ‘safe’ pension schemes which were protected by law. In reality, it is these laws which actually removed security that was there before, but the members were never warned and were therefore denied any opportunity to protect their families and their retirement security.
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PRESS RELEASE Wednesday 14 June 2006
by Dr. Ros Altmann
HUTTON FACES JUDICIAL REVIEW OF REJECTION OF PARLIAMENTARY OMBUDSMAN PENSION REPORT
HIGH COURT CHALLENGE TO GOVERNMENT’S ‘IRRATIONAL AND UNLAWFUL’ RESPONSE LAUNCHED THIS AFTERNOON
Papers have today been lodged in the High Court of Justice, against the Secretary of State for Work and Pensions – John Hutton requesting a Judicial Review of the Government’s decision to reject the findings and recommendations of the Parliamentary Ombudsman’s report ‘Trusting in the Pensions Promise’.
This case is being brought on behalf of all those who have suffered injustice and loss when their company pension scheme wound up and was found to have insufficient assets to meet the payment of their expected pensions, even though Government assured that public that such schemes were safe and protected by law. Together with the Pensions Action Group, I have put forward 4 claimants who have lost some or all of their occupational pension following the winding-up of their scheme and we will seek to prove that the Government’s response is irrational, unreasonable and unlawful.
We are claiming that no reasonable Minister could consider that the findings of maladministration ‘cannot be supported by the facts’ as the Secretary of State has declared. The Parliamentary Ombudsman’s report clearly sets out these facts and, therefore, the Government’s reasoning is flawed and confused.
The Government’s response does not address the findings that the Government’s official information and public statements were ‘sometimes inaccurate, often incomplete, largely inconsistent and potentially misleading’. Instead, it argues that official information was produced for different purposes, for various audiences and that no reader could be left in any doubt that the information was not a full explanation of all the terms and effects of final salary pension schemes. This argument is beside the point, no-one would expect the material to be complete. The Parliamentary Ombudsman concluded that the Government is guilty of maladministration because it failed to mention the risk - which it had itself created - that pension scheme members could lose some or all of their accrued pension rights when their scheme wound up. Indeed, the leaflets did mention risks, but not the most significant risk of pension losses on wind-up.
Since the DWP encouraged people to join or remain in their company pension scheme and assumed responsibility for providing what it called ‘impartial’ information to the public, which failed to mention the losses that could arise if a scheme wound up, and also since it (and not trustees) was responsible for the rules which govern wind-up, it created a legitimate expectation that members would be able to recover all their accrued benefits on wind-up. The Government has not addressed these arguments.
We also assert that the Government has misunderstood the report’s recommendations and its rejection was based on misleading estimates of potential costs to the taxpayer. Firstly, the Report does not recommend that replacement of losses must be funded by the taxpayer, it simply says that the Government should consider how it could replace lost benefits (for example, using unclaimed assets). In its hasty rejection of the Report, the Government has not done this. Furthermore, calculations attempting to justify the estimated ‘£15billion’ cost of compensation are misleading and flawed, since the proper figure is between £2.9 and £3.7billion.
Finally, we claim that the Government is in breach of its obligations under Article 1 of the 1st Protocol of the European Convention of Human Rights. Under this legislation, Governments have a duty to take reasonable and appropriate steps to protect individuals from losing their pensions and to warn them of particular risks. Failure to do so means that the Government is obliged to compensate those affected, which it has refused to do. This refusal is unlawful under Section 6 of the Human Rights Act 1998.
Notes:
1. Up to 125,000 people have lost some or all of their occupational pensions when their company scheme wound up.
2. These people were all led to believe, by the Government, that their pensions were safe, protected by law and even guaranteed.
3. Many have also lost some or all of their ‘Guaranteed Minimum Pension’ rights (which were supposed to replace members’ additional state pension in contracted out schemes.) This means that people who saved for decades in their company scheme have ended up with less pension than they would have received if they had never put any money into a company pension at all!
4. This situation does not only affect members of schemes whose employer is insolvent. Even solvent companies could just decide to wind-up their pension scheme and the law only required them to pay in enough to ensure that the scheme was 100% funded on the Government’s minimum funding standard (MFR), which is, in practice, woefully inadequate to actually buy the members’ promised pensions with bulk annuities (which winding-up schemes have to do).
5. The Parliamentary Ombudsman, after conducting a detailed 16-month independent inquiry, concluded that the Government was guilty of maladministration in its oversight of the occupational pension system and that it should replace the lost pensions and other benefits of those who have been affected between 1997 and 2005 and also that they should receive ‘consolatory payments’ for the stress they have suffered.
6. The Report was laid in the House of Commons and House of Lords (in itself an unusual step and a sign of the strength of feeling the Ombudsman had for this issue) and, in an almost unprecedented move, the Government immediately rejected the findings and almost all the recommendations of the Report.
7. The barristers are Dinah Rose and Tom Hickman of Blackstone Chambers and the solicitors are Stephen Grosz and John Halford of Bindman & Co.
8. The Public Administration Select Committee (PASC) of the House of Commons is also conducting an inquiry into the Government's rejection of the Ombudsman's report. As the hearings are already underway and as we would far rather that Parliament itself rectifies this injustice, rather than the Courts forcing the Government to change its mind, we have asked the Court to adjourn the application until after the PASC has completed its investigation.
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GOVERNMENT FACING JUDICIAL REVIEW OF ITS IRRATIONAL RESPONSE TO PARLIAMENTARY OMBUDSMAN'S REPORT
By Dr Ros Altmann
Pension reform cannot succeed if Government refuses to compensate
The Pensions Action Group's solicitors have written to John Hutton, Secretary of State for Work and Pensions notifying him that we are Launching a judicial review of Government's decision to dismiss the Parliamentary Ombudsman's report on occupational pensions, and refusal to accept her findings of maladministration.
Leading public law solicitors and Counsel (Bindmans and Blackstone Chambers) are acting for members of failed pension schemes on a 'no-win, no-fee' basis and have given the DWP two weeks to provide its full response to the Ombudsman's report and calculations justifying the assertion that compensation would cost £15billion. Over two months ago, Mr. Hutton promised Parliament these would be provided 'in the next few weeks', but they have not yet been produced.
The Judicial Review will claim that Government's unequivocal denial that anyone could have been misled by its literature and assurances of safety is irrational and undermines the statutory purpose of the Parliamentary Commissioner Act 1967. We believe that no reasonable Minister could possibly reject her findings of maladministration. Our lawyers also advise that the Government seems to have deprived scheme members of their property rights and is, therefore, in breach of Section 6 of the Human Rights Act 1998.
Dr. Ros Altmann, pensions expert who has been representing members in their the fight to persuade Government to properly compensate victims of this dreadful injustice, said: 'These people saved for decades, just as Government told them to do, to provide themselves and their families with a pension in retirement. Having believed and trusted Government assurances of safety, they have ended up with nothing. The Ombudsman clearly explained that this is Government's fault, but the DWP has refused to listen.
Unless it does so, it will undermine public confidence in pension reforms unveiled in this week's White Paper.'
The White Paper on pension reform will aim to engender a new culture of saving for retirement in low cost schemes and a pension system that encourages personal responsibility. If, many years down the line, people who follow all the rules find that something goes terribly wrong, and the Government just says they should never have done what they were told, why will anyone trust pensions again in future? Compensation is essential, both in the interests of social justice and future pension reform. Such compensation need not even come from taxpayer funds, as unclaimed assets could be used. However, it must be organised urgently as those affected are in desperate need.
Ros Altmann added: 'It is sad that we must take legal action but the Financial Assistance Scheme will never help most of those affected and has so far only paid out to around 120 people, while costing £5million of taxpayers' money. Government's response is wholly inadequate.
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Press Release from Community Union
ASW pension scheme victims look to European Court of Justice to end misery
Venue: European Court of Justice, Thomas Moore Building, Boulevard Konrad Adenauer, L-2925 Luxembourg, 9.30am, Thursday 1st June
A delegation of former employees of the ASW Steel Company will be seeking to prove that successive UK Governments failed to implement a European Directive which would have protected their pension rights at the European Court of Justice (ECJ), in Luxembourg on Thursday 1st June
The delegation of ex-ASW employees – two from Cardiff and two from Sheerness – will be led by Michael Leahy, General Secretary of Community, their union.
Commenting in advance of the ECJ hearing, Mr Leahy said:
“Our members formerly employed by ASW have endured four years of misery and despair since they lost their jobs and pensions when ASW went bust in July 2002. Perhaps nothing could have been done to protect their jobs, but we believe that if successive UK governments had properly implemented the European Insolvency Directive – which should have been done by 1983 – their pensions would have been protected. They are now looking to the ECJ to end their ordeal and give them the security in retirement they saved for and were told was guaranteed.”
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Press Release from Dr Ros Altmann Wednesday 15th March 2006
GORDON BROWN'S BIG TEST: IS HE FIT TO BE LEADER? WE CALL ON HIM TO RIGHT THIS WRONG IMMEDIATELY
PARLIAMENTARY OMBUDSMAN REPORT FINDS GOVERNMENT GUILTY AND RECOMMENDS FULL RESTORATION OF ALL LOST PENSIONS PLUS DAMAGES FOR THE STRESS AND SUFFERING CAUSED BY GOVERNMENT'S REFUSAL TO ADMIT ITS RESPONSIBILITY – HEADLINE COST COULD BE £5-£10BILLION BUT CAN BE PAID OVER 40 YEARS AT AROUND £100-£150MILLION A YEAR
Summary:
I call on Gordon Brown to accept the findings of this independent report, admit to mistakes that he has made on pensions policy and demonstrate whether he has the leadership qualities necessary to tackle a national crisis. An independent verdict says the Government is guilty of betraying 85000 families – innocent victims of broken promises and a betrayal of trust.
If the Chancellor decides to continue to defy Parliament’s own Ombudsman, then we hope the House of Commons and all duly elected Members of Parliament will hold Government to account for its actions. If our Parliamentary democracy is to mean anything, then justice must be done here.
There are so many dreadful indictments of Government in this Report that it is hard to know which to single out. The basic message that comes through loud and clear is that Government says one thing, that it thinks will sound good to the public, but then does something different in practice, without telling people that it is not actually doing what it said it was. I would point to the following in particular, but read the report and judge for yourself:
* The MFR was only originally designed to give a 50/50 chance of full pensions, but Parliament and the public were never told this!
* The Government decided members needed to believe their pensions were secure, and it should help employers fund pensions as cheaply as possible, so it decided to tell members their pensions were safe, even though they were not.
* Government told the public it was issuing information to help them understand the most important issues about pensions from a source they could trust, but then betrayed that trust by not including the most important information about lack of security
* Ministers misled Parliament over their handling of member security
* The FSA believes that there is more than one meaning of the word ‘guarantee’ and that it does not necessarily mean ‘guarantee’ as everyone else knows it!
* When faced with the consequences of its own actions, Government tried to blame everyone else and fails to accept its own responsibility
* The decent ‘silent majority’ of good people in this country, who trust their Government, believe official information, try to do what they are told and look after themselves and their families have been betrayed
* While Government and officials were increasing their own pensions, they were reducing the security of final salary schemes for everyone else, but decided not to tell members the truth.
I welcome this report, but with great sadness that many of those affected did not live to read it. It has been several years since the victims of this social injustice first discovered they had lost most, or all, of the company pension they had contributed to and which Government had led them to believe was safe and protected by law. The experience of losing one’s entire retirement income and the uncertainty hanging over these individuals and their families is impossible to over-estimate. They have been utterly betrayed by Government.
At last, an independent investigation has highlighted clearly, for all to see, the gravity of the injustice they have suffered. Having been brushed aside and fobbed off by Government for so long, the complainants had almost lost faith in justice . It is to be hoped, therefore, that our Parliamentary democracy does have a mechanism for forcing Governments to face the consequences of their actions, if Ministers and officials are unable, themselves, to appreciate the injustices they are responsible for. We call on Gordon Brown to carefully consider the evidence and findings of this report and immediately agree to rescue these 85,000 innocent victims. If the Chancellor will not accept this, I hope that the House of Commons will hold the Government properly to account.
The Parliamentary Ombudsman has uncovered the full extent of this injustice, and I hope that all Members of Parliament will recognise immediately that they have a duty to ensure pensions are replaced in full. These people have suffered more than enough – it is time they received an apology and full restoration of what has been lawfully taken away from them and what they were always told was actually ‘protected’ by the law.
These individuals have done nothing wrong. Their lives have been devastated by the carelessness of Government and their mistake was that they genuinely believed Government would tell them the truth. It beggars belief that Government is now saying that the members either have lied about actually reading and relying on the official information and leaflets or that, if they did read them, of course they should never have believed what they read!
We as a nation should be ashamed of how our Government is behaving on this issue. Gordon Brown has the power to sort this out and we call on him to do so immediately. MPs and officials need to consider carefully the findings of this report, and hopefully take on board the important messages that it highlights.
‘Informed choice’ has been at the heart of the Government’s pension reform agenda, but if it then takes it upon itself to inform citizens, it must do so honestly, clearly and transparently, rather than trying to hide the truth in order to fulfil its own agenda or please wider interest groups. The Government has also claimed that its policy agenda is based on fairness, social justice and personal responsibility. If those who did indeed take personal responsibility for their future are left high and dry after being lulled into a false sense of security by Government, then the public will be unable to trust official assurances in future.
The Parliamentary Ombudsman investigation is an independent verdict on the Government's handling of occupational pensions in the UK. Government cannot simply decide it does not like the findings. This is Parliament's own Ombudsman, set up to monitor the behaviour of Government and her findings cannot be ignored. All MPs must take this report seriously.
The findings are a damning indictment of the manner in which Governments have overseen final salary pension schemes. She has found that members of these schemes were led to believe their retirement income was secure and were encouraged to join or remain in their scheme by untrue assurances of protection. Government policy deliberately wanted to encourage membership of occupational schemes, Government knew that members would not join unless they thought their pensions were secure, so Government decided to tell them they were safe, even though it actually knew that they weren't.
Some of the most damning findings are as follows (but there are many more!)
MFR WAS DESIGNED ONLY TO PROVIDE A 50/50 CHANCE OF FULL PENSION!
After the 1995 Pensions Act and the introduction of the Minimum Funding Requirement (MFR), Parliament and the public were told that this Minimum Funding Requirement would be designed to protect accrued pension rights. What the Parliamentary Ombudsman has uncovered, however, is that the MFR was actually only designed to give non-pensioner members a 50/50 chance of getting their full pension! How would Ministers and civil servants feel if they had only a 50% chance of getting their pensions? Would they call them secure and safe?
GOVERNMENT DECIDED NOT TO WARN MEMBERS THAT THEY COULD LOSE THEIR PENSIONS IF THEIR SCHEME WOUND UP
Even after warnings from the Actuarial Profession that members should be told the truth, Government still decided not to warn members. In fact, officials specifically mentioned that disclosing the true risks to members would alert the public to the fact that the MFR was not actually designed to protect pensions fully!
GOVERNMENT WEAKENED THE MFR TWICE BUT DID NOT FOLLOW ACTUARIAL ADVICE TO STRENGTHEN IT
Malcolm Wicks misled the House of Commons by suggesting that the Government had weakened the MFR because it believed it is right to follow the advice of the Actuarial Profession, but he failed to mention to the house that Government had not followed the two occasions when the profession advised Government to strengthen the MFR.
WAS GOVERNMENT MORE CONCERNED ABOUT CONTROLLING COSTS TO THE TREASURY THAN ENSURING MEMBER SECURITY?
The reason the Government chose not to follow the advice to strengthen the MFR may have been because officials were afraid this might lead to calls for increases in contracting out rebates and the Treasury had not agreed to this.
GOVERNMENT KNEW THAT PENSIONS WERE NOT PROPERLY PROTECTED BUT DECIDED NOT TO WARN MEMBERS BECAUSE IT WANTED TO ENCOURAGE MEMBERSHIP OF OCCUPATIONAL SCHEMES
The Government had a policy objective of increasing private pension coverage and its pensions and savings policy was driven by a principle of 'informed choice'. It undertook to issue public leaflets and information to help people make these choices, but decided not to give them all the information they actually needed. Government decided to give partial information, only explaining the benefits and not the risks.
THE FINANCIAL ASSISTANCE SCHEME HAS COMPOUNDED THE INJUSTICES AND GOVERNMENT NEEDS TO CHANGE IT URGENTLY
The Parliamentary Ombudsman report warns that she has considered complaints about the Financial Assistance Scheme and believes it contains further injustices which need to be remedied.
THE FSA SEEMS TO BELIEVE THAT THERE IS MORE THAN ONE DEFINTION OF THE WORD GUARANTEE. Apparently, when the FSA uses the term ‘guaranteed’ to refer to something that is not truly guaranteed at all, it is using the ‘lay’ definition of the word. The financial services industry and financial advisers need to take careful note of this!
Gordon Brown must agree to sort this out now. Pay everyone the pensions they were relying on and which Government told them were secure and guaranteed. Then maybe we can get on with restoring some confidence in pensions and sorting out the mess surrounding pensions policy for the future.
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Speech by Dr Ros Altmann at the Press Conference 14 March, 2006
85,000 BROKEN PROMISES
The challenge for Gordon Brown
We are here today to talk about 85,000 broken promises and the 85,000 resultant human tragedies for which the Government must take responsibility.
Tomorrow we will have what could well be the most important report ever published by the Parliamentary Ombudsman.
She will deliver her verdict on the Government’s responsibility for the 85,000 members of company pension schemes which have failed.
Her report is independent and the facts of the case cannot be disputed.
So I believe the report will be a damning condemnation of the Government’s treatment of 85,000 people and their families and its handling of pensions policy. Judge for yourselves when you read her report.
It will show how the Government has broken its promise on their pensions – and left many of them without a penny. How it misled the public into believing their pensions were safe, when they were not.
85,000 people have been robbed of the pensions they paid into for up to 40 years.
85,000 innocent victims of the Government’s betrayal of their trust.
Each personal case is a tragedy:-
a union shop steward, now 63, who read all the official material and told his members their pensions were safe, who can’t afford holidays and lost his 40 years pension contributions…
a widow left destitute who had to lie to her husband and tell him that they would get their pension, so he could die in peace
a 66 year-old robbed of his state pension as well as his company pension
a man trying to find gardening work in his later years to make ends meet
a 59 year old man who can’t find work and has been on the verge of a nervous breakdown
a wife whose husband could have retired and his pension would have been safe, but didn’t know that he would lose his pension by staying on when his company said it needed his skills
a man forced to sell his house because he has no money for his retirement, despite saving for 39 years
85,000 personal tragedies.
So what happened and who’s to blame?
They worked for a variety of companies. Some of the companies went bust. Some were able to leave pension members without their pensions because the Government’s minimum funding standards were totally inadequate. Indeed, this Government weakened funding even more, took billions of pounds out by removing dividend tax relief, but continuously told members their pensions were safe.
This situation affects the 400 or so company schemes which started winding-up after 1997 and before the Government introduced the Pension Protection Fund. It is a finite group of people. There is a start date and an end date to this fiasco.
So the amount to be paid is not totally open ended.
Since the companies won’t pay, the duty falls on the Government.
Why? Because on several occasions Ministers and officials gave what were clearly misleading statements designed to reassure the public that their money was safe and give them biased information telling of the advantages of company pensions, without mentioning any of the risks.
For example: the Government’s Green Paper of 1998 said:
“People should be encouraged to join their employer’s scheme, but will only do so if they believe their pension rights are properly protected.”
In April 2000, Malcolm Wicks, then Pensions Minister, said:
“We are aware of the importance of protecting members’ rights. If we cannot do that, they have no-one else to look to.”
Both the Department of Social Security and the Financial Services Authority put out information leaflets stating unambiguously that the pension schemes were safe, protected by law and – I quote – “guaranteed”.
When the pensions department and the regulator both tell people their pension is safe and “guaranteed”, naturally you believe them. Even these people’s national insurance pensions – which were called ‘Guaranteed Minimum Pensions’ have been taken away – by law.
Unless the Government changes its mind and recognises its obligation, who is going to have the confidence to put their money into a pension ever again?
And what about fairness and social justice. Where does the Chancellor stand on these issues? At the moment, this Government denies 85,000 average men and women the pensions – which they paid for in good faith. At the same time it gives 40% tax relief, amounting to £600,000 per person, to anyone who makes pension contributions up to the maximum £1.5million.
It would cost Gordon Brown, each year, the same as the tax relief on about 200 international tax lawyers to rescue the 85,000 decent men and women who have been robbed of their pensions.
Mr Brown’s response to this report will tell us whose side he’s on. I hope he won’t tell us there’s one law for international tax lawyers and another for Middle Britain. If you are very wealthy, Gordon Brown will make sure you get plenty of tax relief, but if you do all the right things, play by the rules, believe and trust the Government and then find you’ve lost out, he will tell you that taxpayers can’t afford to help.
I hope he will do the right thing. On the face of it, this scandal would cost billions to put right.
But simple proposals which Government has ignored since 2003 could make the costs more manageable:-
First, you don’t need to find many billions, because you should not need to capitalise the long-term cost immediately
Secondly, use the money that is in each scheme to pay out pensions each year. The money is there to pay pensions and was not intended to buy annuities which take away all the assets immediately
This means that the costs are likely to be around £100 million a year. If this was done in 2003, the costs to the taxpayer would have been lower, and the longer the Government delays, the higher the costs become.
Nor does the taxpayer actually have to find a penny. This is because there are many billions in unclaimed assets. Money whose ownership can’t be identified. The Chancellor has proposed giving this money to ‘good causes’ such as youth projects. A good idea – but only after the 85,000 robbed pensions have been rescued.
We don’t want to get into the personal blame game. We want to look forward. To find a solution to the disaster that has hit 85,000 decent men and women.
We hope the Government will abide by the Ombudsman’s impartial verdict. It must listen and learn from her report.
The person who has the power to put it right is the Chancellor. He controls this aspect of Government policy. We want a clear, simple solution from him – not a complicated play on words. The Financial Assistance Scheme is a sop to pretend to backbenchers that something is being done, but has merely compounded the injustices and must be replaced.
This is a test of Gordon Brown and whether he has it in him to succeed Tony Blair – is he up to the job?
We will all be watching to see whether he steps in to save the day for 85,000 loyal citizens whose lives are in ruin because they trusted their Government. Or whether he doesn’t really care.
I hope he rises to the occasion.
Over to you, Mr. Brown.
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Press Release from the Parliamentary Ombudsman 8th March 2006
Ombudsman announces publication date for occupational pensions investigation
The Parliamentary Ombudsman, Ann Abraham, has today announced that she will publish the report of her investigation into the security of final salary occupational pensions on Wednesday 15 March 2006.
Ends
Notes to editors
The Ombudsman’s role is determined by the Parliamentary Commissioner Act 1967 and is to consider complaints that individuals have suffered injustice in consequence of maladministration on the part of Government departments and other bodies in her jurisdiction.
The investigation was launched on 16 November 2004. The terms of reference for the investigation are set out in the annex to this press notice.
The Ombudsman announced that she would publish her report before the Easter parliamentary recess (which begins on 30 March 2006) in a letter to all Members of Parliament on 17th November 2005
The Ombudsman’s investigations must be conducted in private. Therefore, she cannot discuss the content of the report prior to publication.
Annex - investigation terms of reference
Complainants allege maladministration on the part of the Treasury, the National Insurance Contributions Office of Her Majesty’s Revenue and Customs (NICO), the Department for Work and Pensions (DWP) and the former Occupational Pensions Regulatory Authority (OPRA) in relation to their responsibilities for final salary occupational pension schemes.
The investigation will cover the following specific complaints:
DWP and OPRA did not take proper care when informing the trustees and members of Defined Benefit (DB) occupational salary schemes about the degree of security of the pensions to be paid from the employers’ plans. In particular, they failed to warn of the risks to non-pensioner members in the event that a DB scheme was wound up. Instead, publications appeared to provide unqualified reassurance. For example:
The OPRA guidance to Trustees published in 1998 stated that ‘The MFR (Minimum Funding Requirement) refers to the amount of funds that should be in the scheme at any one time in order to meet the scheme’s liabilities if it were to be discontinued.’ This was incorrect, since the MFR was never designed to meet all liabilities of DB schemes on discontinuance, but trustees of such schemes would have been unaware that the statement was incorrect, and would have relied on it in their communication with members. Although the booklet was later amended, the amendments were not brought to the attention of all trustees.
Occupational Pensions guides published by DWP in May 2002 and October 2003 contained reassurances that occupational pensions were protected by a number of laws, and failed to describe the risks to pensions that might arise if a scheme were to be wound up.
As a consequence, the Government led members of DB schemes to believe that their pensions were safe in the event that their scheme was wound up when this was not necessarily the case.
Neither the Treasury nor DWP took action to draw limitations of the MFR to the attention of members of DB schemes. A report from the Faculty and Institute of Actuaries entitled ‘Review of the Minimum Funding Requirement’ submitted to the Treasury in May 2000 identified ‘a large and worrying gap between the level of security which the MFR test actually delivers and the public’s perception of what it would deliver’. The report later stated: ‘It is therefore a key conclusion of this review that there should be full and clear disclosure to members of the objectives and limitations of the MFR test and the consequences if their scheme should be wound up.’ This did not happen. Instead, guides aimed at scheme members continued to provide reassurances without mention of the risks (see paragraph 1b above).
The DWP approved relaxations in the actuarial calculations underpinning MFR on 15 June 1998 and 2 March 2002 without having due regard to the effect this would have on all classes of DB scheme members should a scheme be wound up. Members of DB schemes were not informed that the weakening of the MFR would have the effect that the security of their benefits would be reduced if their scheme were to be wound up.
Delays on the part of NICO in reconciling the Guaranteed Minimum Pension entitlements in respect of members of wound-up DB schemes have caused these schemes to be in winding-up for much longer than necessary. This has caused financial loss to members of those schemes arising from the additional administrative costs to the scheme and from a reduction in annuity rates during the period of delay.
Remedy sought
The complainants consider that the maladministration they allege has led to injustice, in that, for members of such schemes, they were misled into remaining in their employer’s DB scheme and lost the opportunity to move their pension fund elsewhere. They have received a substantially smaller pension than they had been led to expect, and the compensation scheme established by the Government is insufficient to cover their losses. They seek full financial redress for their loss. They also seek compensation for the distress caused to them and to their families.
Trustees of the schemes consider that they have been prevented from fulfilling their obligations to scheme members and that their professional reputation has suffered as a result. They seek a full explanation and redress for the inconvenience caused to them.
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Joint Press Release from Community and Amicus unions
PAG comment: It is interesting to read the government’s defence in section 4 of the editor’s notes
European Commission supports unions’ ASW pension case
Community and Amicus, the unions taking legal action in the European Court of Justice (ECJ) against the UK Government for failing to properly implement European law which would have protected the pensions 1,000 former steelworkers of the former ASW steel company in Cardiff and Sheerness, has been boosted by confirmation that the European Commission supports the unions’ case.
The case is expected to be heard by the ECJ in Spring 2007, although the unions are calling upon the UK Government to either settle now or support a call for the case to be heard sooner in order to end the misery of the former ASW workers and the estimated 65,000 UK citizens similarly affected. It is estimated that the UK Government faces a bill of up to £6 billion in pension liabilities.
Community and Amicus are taking the action because of successive UK Governments' failure to implement European law to protect workers pensions when their employers are declared insolvent. Article 8 of the European Insolvency Directive, should have been implemented in member states by 1983, but the Conservative Government failed to do so properly, the unions’ believe.
The European Commission has submitted its views to the European Court of Justice regarding the proceedings and has supported the unions’ case. In addition, in a European Parliamentary Answer to Jim Allister QC MEP, given at the beginning of January, that the Pension Protection Fund (PPF), which was established in the wake of the ASW scandal to ensure that pensions scheme members, do not suffer the same fate as the ASW pension schemes’ members is not itself sufficient to comply with the Directive.
When ASW went into liquidation it left behind it two pension schemes with serious deficits. The schemes cannot afford the pensions that were promised. Some members will receive very much less than they were entitled to. For example ex-employees in Cardiff have been told that they will receive only 14% of their expected pension, many of them after paying for 30 years or more into the scheme. In addition, widows whose husbands have subsequently died when they were in the late 50’s have received no financial support from the underfunded pensions schemes, whereas, if successive UK Governments had complied with Article 8 they would have received death in service benefits as well as a pension to live on.
Commenting on the Commission’s evidence supporting the Community and Amicus’ case, a spokesperson for both unions said:
“We have always believed that we had a strong case and the Commission’s evidence to the ECJ strongly supports that. If the PPF does not comply with Article 8 then how can the UK be compliant before that when no effective protection was in place? We believe that Ministers in successive Governments throughout the 1980’s and 1990’s knew this but cynically hoped that they could get away with doing nothing. Now our members are paying the price. It is a scandal.
“Our members in Cardiff and Sheerness, and also the thousands of other workers who may benefit, are calling upon the Government to settle this case in order to end the hardship and uncertainty that the members of the ASW pension schemes are suffering. If they won’t do that then the very least we would expect them to do is support a call for the ECJ to hear this case at the earliest opportunity."
Editor’s Notes:
1) Community and Amicus issued a High Court claim on behalf of 1,000 pension scheme members of Allied Steel and Wire Ltd (ASW) from Cardiff and Sheerness who lost the bulk of their pensions when the company was declared bankrupt in 2002, leaving two pension funds in deficit.
2) The unions commenced proceedings against the Government, not the company. The European Insolvency Directive requires all member states to put in place the measures necessary to protect pension rights in the event of insolvency. The unions’ case is that
The Government failed to put those measures in place and the unions maintain that the Government is obliged to provide compensation as a result.
3) Article 8 of the Insolvency Directive reads:
"Member States shall ensure that the necessary measures are taken to protect the interests of employees and of persons having already left the employer's undertaking or business at the date of the onset of the employer's insolvency in respect of rights conferring on them immediate or prospective entitlement to old-age benefits, including survivors' benefits, under supplementary company or inter-company pension schemes outside the national statutory social security schemes."
4) The Government says that the existing legislation is sufficient to protect pension rights as required by European law. They are relying on:
a) The fact that, in order to obtain tax approval, pension funds have to be held in a separate trust fund;
b) The fact that to a limited degree, unpaid pension contributions will be by the National Insurance Fund;
c) The Minimum Funding Requirement regime meant that pension schemes have to be adequately funded;
d) The fact that if a pension scheme is contracted out of the State Second Pension (or its predecessor, SERPS) then members will be bought back into the State scheme as if they had not been contracted out;
e) The Compensation Fund, which will make up the deficit if a scheme winds up and as the consequence of fraud there is insufficient money to pay all pensions;
f) If a pension scheme winds up in deficit, the fact that pensioners get better protection because the law requires the scheme to give them priority.
The Commission agrees with us that none of these provisions are enough. They say that the Government is not obliged to guarantee underfunded pension schemes itself, but the Directive requires it to ensure that pension schemes are adequately funded at all times to pay for the pension rights which have been built up. If there is any possibility of underfunding (for instance because it takes time to rectify a deficit) then the Government has to ensure that there is a guarantee fund (such as the Pension Protection Fund) which will meet the deficit if the company becomes insolvent and unable to do so itself.
5) The ASW pension schemes collapsed before the Pension Protection Fund (PPF) was created. The PPF cannot bail them out therefore and the Government can’t point to the existence of the PPF to argue that UK law was sufficient to protect the ASW scheme members. But it seems to follow from the views that the Commission has expressed that the PPF in its current form would not be enough anyway. That is because the Commission’s view seems to be that all benefits already built up must be protected – not subject to the cap on benefits which the PPF can pay.
6) That is also the view the Commission expressed in a European Parliamentary Answer to Jim Allister QC MEP, given at the beginning of January. They appointed an independent expert to look at the UK Government’s compliance with European law. Examining the PPF on its own, the expert said in September last year that it was not sufficient to comply with the requirements of the Insolvency Directive. Now, in its observations to the European Court in the ASW case, the Commission has said that the remainder of UK law does not do so either.
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Reply to Number 10 letter
During the Halloween protest (see News page) a letter (see Documents page) was handed in to number 10 Downing Street. The letter was signed by Peter Wheeler (ex Kalamazoo). The letter was passed from Number 10 to the DWP and a superficial reply from Stephen Timms was received referring to a detailed attachment which was not actually attached (more DWP efficiency). After much pressure from Peter the following expanded version was received. Reading it shows that it is not a reply to our letter per se but is, in fact, a copy of a letter presumably sent to an unknown MP who had written about one of his/her constituents. Make of it what you will:
Member Eligibility
The FAS will, as a priority, provide assistance to members of eligible pension schemes who were within three years of their scheme's normal retirement age, or above, on 14 May 2004. This was the date we first announced the FAS.
In designing the structure of the FAS, our priority was to get help to those facing the most urgent difficulties. These are clearly people who are closest to, or already at, retirement age and are therefore less able to make provision to replace their lost pensions because of this position.
It is unfortunately inevitable that with any limited scheme, Such as the FAS, there will be people like your constituent [sic] who fall outside the qualifying criteria. Whilst this does appear particularly unfair to those who miss out by just a few years, a line has to be drawn somewhere.
Level of assistance
Assistance will top up their scheme pension to a level broadly equivalent to 80 per cent of their expected pension. Payments from the FAS will be subject to a benefit cap and will top up expected core pension benefits to a maximum of £12,000 a year.
£12,000 strikes a balance between targeting assistance on the hardest hit, and giving some help to people who have lost part of a more substantial pension.
Estimates based on the last FAS data collection exercise indicate that only a small minority of members (perhaps 5-10%) will be affected by the £12,000 cap and that the majority of those affected are still likely to qualify for some assistance payments from the FAS.
Looking more widely, the average recently retired pensioner household (singles and couples), receives on average occupational pension income of less than £5,000 per year. 90% of pensioner households (singles and couples) have private pension income which is less than £12,000 per year.
Indexation
Because FAS funding is limited, indexation will not be provided. This will allow the available funds to be spread more widely. Indexation is essentially an additional rather than a core component of pension rights. In contrast to revaluation (revaluing pension rights before pension age), it is treated separately at wind-up and is often lost if the scheme is underfunded.
Payments at 65
The FAS has a limited budget funded by the taxpayer and it is important to target this funding effectively. Ministers have always made clear that FAS provides assistance not compensation, and that it is not designed to replicate every detail of people's pension schemes. For simplicity and to keep costs down it will operate a single set of rules, based on the most common features of occupational pension schemes. According to the Occupational Pension Schemes 2000 survey by the Government Actuary's Department, over 60% of active members of private sector defined benefit schemes have a retirement age of 65.
Ill Health
If a scheme member is expecting to be entitled to FAS assistance at 65, but is terminally ill, the trustees of his scheme will be able to apply to us for early access to FAS payments. Once the individual's scheme trustee has provided us with the information that we need, we will carry out a FAS assessment for the individual, as a matter of priority.
A qualifying member who meets our criteria for being 'terminally ill' will receive a 'top-up' which is the difference between a level broadly equivalent to 80 per cent of their "expected pension" and the "actual pension" available to the member from the qualifying pension scheme at the end of wind up. If the scheme of such a member has not completed wind up, an initial payment can be made equating to 60% of expected pension, (subject to the £12,000 cap and minimum payment of £520 per year).
Interim Payments
Discretionary 'initial payments' can be made to scheme members who reach age 65 before their pension scheme has completed winding up. We cannot know how much pension a scheme member has lost and how much remains until his or her scheme has completed wind-up. This means that FAS will not be able to make initial payments unless trustees of qualifying pension schemes apply for them, and unless they provide the information which is set out in our regulations.
Initial payments will equate to 60% of core expected pension, subject to the £12,000 cap and minimum payment of £520 per year. The rate has been set at 60% because at that stage of winding up scheme trustees will not know how the scheme's assets compare with its liabilities, and how much pension individual members have lost. Initial payments from the FAS will take account of any initial payments from the pension scheme. The top-up rate will be adjusted to 80% on the completion of wind-up and, if needed, arrears will be paid to compensate for the lower rate of payment during wind-up.
Lump Sum
The FAS is not a pension scheme, so it does not hold a fund in respect of each qualifying member which could be commuted into a lump sum. It is intended to provide a contribution towards the replacement of retirement income, which is why we have made provision for survivors of qualifying members to receive assistance too.
Solvency Position
We have sympathy for all those people who are affected by pension losses through no fault of their own. However, we strongly believe that solvent employers have a duty to support their schemes and that it is right that we focus assistance only where schemes' employers are insolvent. It would not be right to allow employers to ignore this moral responsibility and allow them to offload the under-funding in their schemes onto the general taxpayer.
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Reply to Letter Handed in to Number 10 Downing Street on Sunday 30th October
A report on this event can be found on the News page, and a copy of the letter can be found below on this page. The letter was forwarded from Number 10 on to the DWP and Peter Wheeler (Kalamazoo), who was the lead signatory, received the reply below. Note that it refers to a detailed reply to the bullet points in the letter. This detailed reply has not yet been received
Dear Mr Wheeler
Thank you for your letter of 30 October to the Prime Minister regarding the petition you submitted on behalf of the Pensions Action Group. Due to the subject of the letter it was passed to this Department for a reply. I understand you have received an acknowledgement from the Prime Minister thanking you for your letter.
Your letter raised a wide range of issues relating to the difficult situation you are in and the Financial Assistance Scheme (FAS). The attached note provides a detailed reply on these issues.
I turn now to your comments about the Parliamentary Ombudsman. I can assure you that the Government has not been responsible for any delay in the Ombudsman's investigation and report. On occasion, she has asked for further evidence, for our response to new evidence that the investigation has uncovered or for comment on points made to her by representatives of those affected. In those matters my officials have given her every possible assistance.
I understand that the Ombudsman has now completed her scrutiny of all of the relevant evidence, covering more than ten years of the development of the statutory, regulatory and administrative frameworks governing the provision of final salary occupational pensions. Having done so she is drafting her report, setting out her findings on these matters. She has said that it is now clear that she will not be able to publish her report by the end of 2005, as she had hoped, but she does intend to publish it before the Parliamentary recess on 30 March 2006.
You also asked to meet the Prime Minister to discuss your concerns. I am afraid the Prime Minister has an extremely busy schedule and will not be able to meet you. However, I understand representatives of the Pension Action Group are due to meet the Secretary of State on the 10th January.
Stephen Timms
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Response from Dr Ros Altmann to the Ombudsman’s letter:
BIGGEST SOCIAL INJUSTICE OF OUR TIME - VICTIMS OF PENSION SCHEME WIND-UPS LET DOWN YET AGAIN. PARLIAMENTARY OMBUDSMAN ANNOUNCES UNEXPECTED DELAY IN PUBLICATION OF HER REPORT
Some 85,000 people are waiting for the publication of a report by the independent Parliamentary Ombudsman. They were assured that the report would be published in October 2005 and have been nervously anticipating it. However, they have just received a letter (see below) telling them that the Ombudsman has now decided not to publish the report until March 2006.
Having launched their investigation last November, the Parliamentary Ombudsman’s office wrote to complainants in March, telling them that the Report should be complete in July 2005.
On 15th July the complainants received a letter from the Ombudsman's office saying: 'I am sorry that we have not been able to meet our anticipated deadline.' and 'The draft report is now almost finalised. We have received today the last submission from the Government' ... 'That means that our estimate of publication is now shortly after Parliament returns on 10 October 2005' Another letter on 18th July also apologised for the delay in being unable to finalise the report in July - 'I realise that this delay to our anticipated timetable will be disappointing'.
Then, out of the blue, in mid-November, they receive a letter indicating that the report is not even written and will not be published for many more months. This letter hardly acknowledges the dreadful distress that more months of waiting will cause.
This has come as a dreadful blow to people who had been told that the inquiry was finished.
These are people who saved all their lives in company pension schemes, which they were often compelled to join. They were prevented from having any other pension by Inland Revenue rules. They were assured by successive Governments that their pensions were safe and protected by law, but in fact they were not. Having believed and trusted Government assurances of protection, when they found that their life savings had been taken away from them, by law, on scheme wind-up and used for purchase of pensions for other scheme members, they asked Government to compensate them. Government refused and they launched an appeal to ask the Parliamentary Ombudsman to investigate Government administration and oversight of the occupational pension system. They had been pinning their hopes on a proper independent investigation by our Parliamentary watchdog, using our Parliamentary democracy to try to achieve the social justice they deserve.
The reasons given to justify this further delay do not seem to explain it properly at all. It was always the case that this report would be complicated and would entail serious implications for both Government and complainants. That is nothing new and was the case in March and in July and yet back then the Ombudsman's office still indicated that the report would be published around October. How many times can these people be let down?
What has happened? Why has this report suddenly been held up? The Ombudsman's letter also makes no mention of the inquiry investigating the injustice caused to members and whether the Financial Assistance Scheme is causing further injustices, yet the complainants have asked her to look at this too and were told that this has been included. We hope that this is still the case.
Why does Government need so many months to read and respond to a report it was sent weeks ago? The victims are at their wits end. How many times can they be let down and be forced to wait, without apparent concern for the distress this is causing?
I call on MPs to help persuade the Government to compensate these people for the dreadful wrongs they have suffered. This case should never have been brought before the Parliamentary Ombudsman anyway. If such actions had taken place in the private sector, these people would have been compensated long ago. If there had not been a Labour government in power, I believe that these pensions would have been restored by now too.
These people are decent, hard-working citizens, who played by the rules, did what they were told and have been treated appallingly. They did everything society asked and expected of them, they believed and trusted our pension system. It has let them down and destroyed their lives. Some have lost their entire occupational pension and also, because of our system of contracting out, they have also lost their state earnings related pension too. They would have more pension now if they had never, ever put a penny into their company pension scheme at all, because they would have received their pension from the state. Yet, they were told that they were saving for a 'guaranteed minimum pension'! Government told them this and they believed it. Some families have seen the husband, who saved all his life in a company pension, die of cancer aged 56, and he has left no pension and no life insurance either. Life insurance is tied up in their pension scheme too, but they were never told that this could happen, so they did not know they might need separate life cover. Society has let these good people down and we owe it to them to restore the pensions they have lost.
How can we restore confidence in pensions if these people are still left begging and fighting for the pensions that Government told them were safe, protected by law and 'guaranteed'? It is in our national interest to put an end to this suffering now. Justice delayed is justice denied.
Notes:
1. The injustice of pension scheme wind-ups has affected over 85,000 people. It is not just those whose companies have gone bust. It also affects people whose employers are still solvent and many of whom have lost over 80% of their pensions. The Government tries to say that the problem is caused by employers becoming insolvent with underfunded pension schemes. This is not true. Many employers are still solvent and many schemes were 'fully funded' or even over 100% funded on the Minimum Funding Requirement (MFR) official funding standard. The 1995 Pensions Act and subsequent debates and Government literature, told scheme members that the MFR was designed to ensure that schemes would have enough money to pay members' pensions even if their employer went out of business or the scheme was wound up. However, the MFR was weakened twice, in 1998 and 2002, and was a totally inadequate funding standard. Yet members were lulled into a false sense of security, believing they were safe and therefore that they did not need to worry about pension provision or life insurance, because it was all taken care of in their company scheme. Even when they checked with the Government, they were always told their pension was safe and were never once warned that there was any possible risk to their money.
2. The Financial Assistance Scheme provides no help to anyone. The Government has trumpeted this as the answer to this dreadful injustice, but that is insincere. The Financial Assistance Scheme has committed Government to spend £400m over the next 20 years, but no actual new money is budgeted for the scheme before 2007 and £400m may sound a large sum, but it is totally inadequate to meet the needs of these people. In fact, it is really little different from what they would be entitled to in means tested benefits anyway, so it is rather an academic exercise, which is costing the taxpayer extra money. The whole scheme is only designed to help a small fraction of those affected by this injustice - it excludes over 80% of those who have lost out and even those who are covered will only receive a fraction of the pension they were told was safe and protected by law.
Dr Ros Altmann
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Letter from the Parliamentary Ombudsman
Thursday 17th November 2005
Dear Member
OCCUPATIONAL PENSIONS INVESTIGATION
I am writing to update you on the progress of my investigation into the security of final salary occupational pension schemes and alleged delays in the winding up of such schemes.
Members of Parliament from all political parties and from all parts of the UK have referred approximately 200 complaints from individual pension scheme members or trustees who claim to have suffered injustice when their scheme wound up with insufficient funds to meet all of its liabilities towards them. I have received more than 400 further direct representations about the same matters.
I wrote to all then Members of Parliament on 16 November 2004 to inform them that I was launching an investigation into those complaints, which alleged that injustice had been caused by maladministration on the part of the Department for Work and Pensions (DWP), Her Majesty’s Treasury, the former Occupational Pensions Regulatory Authority, and the National Insurance Contributions Office of Her Majesty’s Revenue and Customs (NICO).
My investigation has focused on determining three questions:
(i) first, I have considered whether the official information provided by these public bodies was complete, consistent, and accurate in relation to the degree of security provided to scheme members by the statutory framework for the regulation of occupational pensions;
(ii) secondly, I have considered whether certain decisions taken by DWP were taken with maladministration. The decisions in question related to changes to the statutory Minimum Funding Requirement for pension scheme funding and to a decision not to disclose the risks to scheme members’ pension rights if a scheme wound up under-funded; and
(iii) thirdly, I have considered whether maladministration by NICO has caused or contributed to serious delays in the winding-up of certain schemes, leading to extended uncertainty for many individuals and mounting costs which reduce the assets that a scheme has to meet its liabilities.
I have now completed my scrutiny of all of the relevant evidence, covering more than ten years of the development of the statutory, regulatory and administrative frameworks governing the provision of final salary occupational pensions.
I am now drafting my report, setting out my findings on these matters. I have also carefully considered the timetable for the publication of my report.
The factors that have guided this consideration are that:
(i) whether or not I uphold the complaints, the implications of my findings – for complainants or for government – may be considerable;
(ii) in recognition both of this and of natural justice, all interested parties – the bodies under investigation, the representatives of complainants and also the professional and other bodies within the pensions industry - should have an appropriate opportunity to read and reflect on my report, before responding to my findings; and
(iii) the considerable complexity of the matters covered in my report means that it is not reasonable for me to expect responses to my findings within the normal timescales used in my investigations of individual cases.
In light of the above, it is now clear that I will not be able to publish my report by the end of 2005, as I had previously hoped. I do intend, however, to publish it before the Parliamentary recess on 30 March 2006.
I realise that this may disappoint those who keenly await publication of my report, but I hope that you will understand why it is important that the process I use to finalise my report is properly balanced and that the timetable for publication reflects the complexity of the subject matter of my report.
I will write to you again – probably in February 2006 - once the publication date is set.
Yours sincerely
Ann Abraham
Parliamentary and Health Service Ombudsman
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Open letter handed in to Number 10 Downing Street during the protest march Sunday 30th October
Dear Mr Blair
The Pensions Action Group represents people who have lost most, in some cases all, of their occupational pension when their employer’s pension scheme was wound up. We speak on behalf of the 85,000 people from nearly 400 schemes who were told by the government that their promised occupational pensions were safe, guaranteed and protected by law.
The government has acknowledged the injustice of lost pensions with the introduction of the Financial Assistance Scheme (FAS) in the recent Pensions Act. Whilst this is welcome for a few, it is not nearly sufficient to address the problems we face. It is supposed to deliver help to those who need it most, but the way it is designed will not help most of us and is further compounding the injustices we face. There are many problems with the FAS:
* The scheme only covers people inside a three year window before their scheme retirement age. There is nothing at all for the remaining 70,000 people, many of whom are now in their 60’s, who have saved all their lives and lost their entire pension without warning. Their lives are destroyed and they also need help now.
* The scheme will only provide 80% of the promised pension which people were told was safe, guaranteed and protected by law.
* There will be a cap of £12,000 pa (compared with the Pension Protection Fund (PPF) cap of £25,000). The cap was imposed, it is said, to catch senior managers responsible for the wind up. However, in most companies senior mangers have their own private pension arrangements and the cap only affects the employees, particularly those with long service.
* There will be no inflation-linking; 3% inflation halves income over twenty years.
* The FAS will not make any payments until the state pension age of 65 despite many schemes, particularly in heavy industry and manufacturing, having earlier retirement ages. As a result, the lack of indexing will erode pensions further.
* There is no mechanism for drawing an early pension on grounds of ill health.
* Payments for most people will not be made until the scheme wind-up is complete, which can take many years and prevents any ability to plan properly for retirement.
* There is no mechanism for commutation of pension for a lump sum which many people were relying on to make up endowment mortgage shortfalls.
* Members of schemes where the employer is still solvent are specifically excluded.
We would point out that in the future people will know where they stand with the PPF and can make suitable additional arrangements if they are unhappy with the risk. We were not told of the risk we were taking with the most important investment of our lives.
We also note that in discussions over the recent proposed changes to civil service pensions, both the government and the TUC said it was “wrong to change the rules and not deliver the pensions people have been promised”. Why should the same phrase not apply to us?
At the 2004 Labour Party Conference Gordon Brown acknowledged that our plight was "simply wrong", and promised to “work with the unions to do what it takes to tackle the gross injustice of workers who, through no fault of their own, find their pensions have been destroyed.” We are still waiting.
As you are no doubt aware, we made a complaint to the Parliamentary Ombudsman in late 2004 about the government’s administration of final salary Occupational Pensions. We were initially told the result of the enquiry would be published before Parliament ended in July, but this date was not met because the government asked to submit further evidence. Some four months later the report has still not been published and the delay is proving intolerably stressful for those who do not know what pension, if any, they will receive.
We feel that the government is not taking our plight seriously, and despite much time and many promises we still face retirement in poverty. We did everything successive Governments asked of us, but we were not told the truth. We believed and trusted Government assurances of protection, and were never warned of any risk. It is Government’s responsibility to rectify this injustice, since Government is directly responsible for what has happened to us:
Government was in charge of the funding standards for occupational pensions and twice weakened those standards.
Government and its regulator were responsible for the administration of the system.
Government departments all sent out public information telling of the benefits of joining our schemes, without warning of any risks.
This is maladministration and, if Government makes mistakes, then those mistakes must be corrected. If we do not receive compensation, how will anyone ever be able to trust Government’s word on pensions in future?
We urge you to right this dreadful wrong immediately and acknowledge that we must receive the pensions which Government told us were safe and protected by law, so that this country can finally begin to restore some confidence in pensions and we can all get on with our lives.
We would be most grateful for an opportunity to meet with you to discuss these tragic events.
Yours sincerely
Pensions Action Group
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Press Release from Amicus Trade Union 25th October
UNIONS TAKE GOVERNMENT TO EUROPEAN COURT
Amicus, Britain's biggest private sector union along with Community have today submitted evidence to the European Court of Justice as part of an on going legal battle with the UK Government to win compensation for workers who have lost their pensions through company insolvency.
Under an insolvency directive issued in 1980, member states were required to take measures to protect the interests of employees pensions. The Uk under the Thatcher Government was the only member state that failed to meet the obligation.
Amicus in conjunction with Community have taken to UK Government to the ECJ for justice in respect of the Allied Steel Wire workers who several years ago lost their jobs and pensions through insolvency.
Amicus General Secretary Derek Simpson says,
"It must be a fundamental right that people who save in a company pension scheme should be protected by law. We believe if the 1980 insolvency directive had been implemented by the Thatcher government at the time, then thousands of hardworking people would not be facing poverty in their old age. Our legal advice is sound and the union is confident of a victory on behalf of our members"
The written Observations with the European Court of Justice (ECJ) today (Monday) is the first opportunity the unions have had to explain the issues to the ECJ in detail.
The case which they make in their Written Observations is as follows.
1. Article 8 of the Insolvency Directive (Directive 80/987/EC) requires the member states of the European Union to "ensure that the necessary measures are taken to protect the interests of employees and of persons having already left the employer's undertaking or business [i.e. pensioners and deferred pensioners] in respect of rights conferring on them immediate or prospective entitlement to old-age benefits...." under company pension schemes. In the case of the Claimants in these proceedings, who may receive as little as 20% of their expected pension, the UK Government has manifestly failed to meet that obligation.
Article 8 requires the member states to ensure that such pension entitlements are fully funded at all times. The UK failed to do that until, belatedly, it created the Pension Protection Fund (PPF) and the Financial Assistance Scheme (FAS) under the Pensions Act 2004. The PPF has come too late for these Claimants; the FAS provides woefully inadequate protection. Only 73 members of the ASW Cardiff Pension Plan are likely to qualify for any payment under the FAS at all.
2. The legislation relied on by the Government, prior to the Pensions Act 2004, did little or nothing to protect scheme members. The minimum funding requirement (MFR) says nothing about the solvency of a pension scheme if it is wound up, and the timescales allowed for bringing the pension scheme up to the inadequate MFR level mean that the scheme could legitimately remain below the MFR level for up to ten years.
The UK Government also relied on the legal requirement that, in most cases, pension scheme assets had to be held separately from the assets of the sponsoring employers. That said nothing about the amount of the contributions the employers had to pay into the scheme and, at the time when the Directive was meant to be implemented (October 1983) the only necessity to contribute was an Inland Revenue requirement to pay contributions at a level more than "token or insignificant." The tax law was designed to prevent pension schemes being over-funded. It was not designed to ensure that they were properly funded.
Finally, the Government relied on the existence of the Pensions Compensation Board - which only comes into play where the pension scheme has been raided dishonestly - and the relatively trivial amount the National Insurance Fund will pay in respect of unpaid pension contributions if an employer becomes insolvent leaving an under-funded pension scheme in its wake.
3. The Claimants say that the Government is legally obliged to compensate them for the losses they have suffered as a result. The ECJ can require member states to pay compensation where citizens have lost out as a result of theb Government's failure to implement a Directive. The best known example in this country is the Spanish Fishermen's case. The ECJ's case law dictates that compensation should be paid if the European legal provision is (i) sufficiently precise, (ii) is designed to grant rights to individuals and (iii) the loss suffered by the Claimants is causally linked to the failure to implement the Directive correctly. The Government's failure to implement the Insolvency Directive in the case of pension rights is so serious that compensation ought to be paid.
The Government is required to submit any Written Observations it may wish to make by the 24th October. The European Commission is also entitled to make Written Observations if it thinks fit.
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Minutes of Meeting with David Blunkett 7th September 2005
Minutes taken by Chris Panteli Professional Pensions
David Blunkett: You met with Stephen Timms didn’t you, just before the summer break and he reported back to me on what was clearly a very disturbing meeting for him as all these meetings are for you and I understand that very well. Any of the difficulties some of us have experienced in life is nothing compared to what you and people like you are going through.
So I think we should start off with the presumption that while sympathy is no good whatsoever to you we do understand and I hope you feel that people are trying to bat on the same side albeit you’ve not been able to progress as quickly as you would have wanted.
Ros Altmann: We’re all here today because the problems affecting these people have not gone away. They’ve been in this position for an number of years and, as you know, we’ve been trying very hard to persuade the government to understand that this is the fault of government. Not necessarily this government but successive governments, and unless and until the government does actually accept that it is responsible and must pay proper compensation to these people, the issue won’t go away. As far as I’m concerned it’s not just a question of social justice although of course that is paramount and that’s why I’ve spent so much time trying to help and each of these people will tell you their story if they may, to explain what has happened and why they are in this position. But it’s also from the point of view of restoring confidence and trust in pensions as a whole and in the government’s word in pensions.
If the government tells people that pensions are safe, assures them that any money they put in is protected by the law and in many cases offers a guaranteed pension and something goes wrong, and government doesn’t then say ‘look we made a mistake, we didn’t mean this to happen but it has, we have to make it up to you. We understand your pain, we understand your suffering and it’s not your fault, then I don’t see how we can expect people to keep trusting in pensions in future. As far as my work is concerned, obviously I want to restore some trust and confidence in pensions writ large across the economy.
DB: I am very happy to listen to each person individually but can I just set the scene. I have obviously familiarised myself since the beginning of May with the historic situation, what happened 10 years ago in relation to the MFR (minimum funding requirement), the challenges which have been launched – and I am very aware of the Ombudsman’s situation in relation to that – and other issues. And of course the obligation of ministers both to address the immediate problems and to be aware of their own responsibilities past and present.
The introduction of PPF and the new regulations which were brought in under the Pensions Act last year including the responsibility of trustees but also the actuarial assessment, the way in which the new regulator has been established are all a reflection of an understanding that none of us ever want a situation that you’re in to be in again and the question that we will be addressing over the months and years ahead is ‘is there more that can be done but doesn’t accept that government has to be responsible for picking up the pieces for everything on every occasion relating to these issues’.
That question is a difficult one because people do turn to government at times of great distress, understandably but if government are responsible for the immediate situation, we have an obligation to continue looking at what we can do.
Shall we go around in turn?
Barry Tilson: I joined Perivan when I left school at 15 and at 18 was told I had to join the pension scheme. I joined their final salary pension scheme which they said was protected by the government, that you won’t find a better scheme, that trustees have shopped around and they feel it’s the best option.
To cut a long story short I was there all my life, for 39 years and three months. The company then made us redundant in November 2003. Prior to that, in May 2003 they stopped the pension fund but said our pensions were still safe, they would be paying in to it, there’s no problem there but we’re not taking any new entries.
Three months later the company folded. I was six months out of work for the first time in my life and...
DB: How far off retirement?
BT: I’m 56 now, I got made redundant, and I’ve got no time to...
DB: You paid in from when you were 15?
BT: From when I was 18, for 36 years, and I’m absolutely devastated like everyone here today.
RA: He gets nothing from the FAS
DB: I understand that. Who’s next?
John Hayter: I sought gainful employment with ASW Sheerness in a steel foundry in 1974 and had to join the pension scheme. It turned out to be a very good scheme. I couldn’t get an alternative arrangement with a private provider at the time because of Inland Revenue rules.
Our pension scheme was governed by by government rules and regulations which my company obeyed to the letter.
This continued until 2002 when ASW went into receivership and as a consequence of that the scheme was wound up. My wife, my family and I now face penury through no fault of our own. We were told all the way through that our scheme was guaranteed safe – not only by our company but this was reinforced by the government throughout those years especially after Maxwell and the introduction of the MFR, and the MFR being our yardstick. That’s how we judged the health of our pension schemes.
But going back to 2000 the government was talking about the inadequacies of the MFR and how it should be altered/abolished, and meanwhile, your government lowered the threshold of the MFR twice since then.
Our pension scheme was 104pc funded at the time of wind-up. We know different now, but that told us that anything over 100pc was whole or substantial, not being pensions experts.
I understand that the MFR was introduced to stop exactly what has happened to us. In fact it was that measure which let us down because the public awareness of the MFR was totally different to the reality of what it really was, to what government knew it was, what pension experts knew it was. And in between, the government lowering the threshold twice and the £5bn a year raid on tax has damaged our pensions beyond belief.
One one hand you were acknowledging that the MFR was inadequate and didn’t fulfil what we thought it would and then you lower it twice on the other hand and damage us even further. And throughout all this, no one ever warned us that there was any risk. Completely the opposite.
DB: I understand that, Mr Hayter. Who’s next?
Richard Nicholl: I’m a member of the FH Burgess pension scheme and...
DB: I think yours is a slightly different problem isn’t? They haven’t gone...
RN: Yes our company is still solvent. I joined the company when I was 19, joined the pension scheme when I was 20 and paid in for 27 years. The scheme went into wind up in 2000, by which time I was also a trustee. Like other people in our scheme, I am expecting around 15% of my pension. I am representing the other people from solvent companies and most scheme trustees faced a similar position when their fund was faced with closure. Most entered a compromise agreement, drawn up legally, which allowed some limited funds to be put into the scheme by the company involved, in return for cancellation of the deficit. This would be preferential to forcing the deficit debt, which would probably have forced the failure of the companies involved, with subsequent job losses. In our case the company has agreed a share of any profits for 10 years, and so has behaved reasonably well, and totally legally. The directors have all got their money in the same pension scheme so we are all in the same boat.
What I would say with regard to solvent companies is that various people have said that we should get the deficit money from the company involved. Even now most of the companies would go into insolvency if the debt was forced on them and the main point is that there’s no legislation that forces them to make up any deficit. Even the 2003 legislation has proved ineffective and we have APW and Henlys as proof of that.
We’ve made the point several times that any assistance would be made to the individual and not the company so the company’s not going to put in any money anyway so we feel we are in no man’s land. We’re not covered by the PPF, we’re not covered by the FAS we’re on our own and it seems the government wants it both ways. There’s no assistance and there’s no legislation to force the companies to pay even if they could.
DB: I’d like to come back to you, perhaps you could drop me a line on that last point, because if there’s measures that can be taken to improve the regulation in circumstances like your own then I would be very happy to talk to the Chancellor and to other colleagues about that. Who’s next?
Alan Marnes: I was a member Samuel Jones scheme for 36 years before it closed. I started there at 15, I put in about £36,000 of my own money into the scheme. That money must now be passed on to an annuity provider which will not provide for me or my fellow workers. It will be given to somebody else as the government says it must.
I can’t see myself at the age of 54 being paid anything out of the FAS. We have one widow in our scheme who was promised the opportunity of early retirement the Christmas before our scheme folded. She has not received one penny from anywhere for her husband’s contributions. I’m very disappointed that the government still continues with the push to make insolvent schemes buy annuities.
DB: Have the trustees...
AM: I am a trustee.
DB: Have you as trustees been given very clear advice that the only way of securing a definite commitment over the years ahead is to go for the annuity.
AM: For those that have already retired. There isn’t any money left for us who are yet to retire. Not a single penny.
Tony Brown: I was with Dexion Hemel Hempstead for 29 years. The company became insolvent in June 2003 and the pension fund had a deficit of £20m. After the Maxwell fiasco the previous government put in legislation which we thought to benefit and help people for the future. Soon after Labour came to power, Gordon Brown introduced a stealth tax which took £20,000 a year out of the Dexion fund.
This government twice lowered the MFR at a time when, because of falling annuity rates, it should have been increased. Even your own Frank Fields told this government some years ago what was required to provide compensation to deferred pensions members by using the unclaimed assets. This government, through various departments, misled us in booklets as late as 2003, which referred to pensions as being safe and protected by law. This government then introduced the so-called Financial Assistance Scheme with a proposed £400m over 20 years. This came just before an election and to gain confidence within their own party, many of whom now believe the pensions problem has been finalised.
John Benson: I worked for ASW Cardiff for 41 years. Since losing my pension I’ve been on the verge of a nervous breakdown, nearly lost my marriage, I had to turn down an operation because I would have been off work for six months. Had I received my pension I would have been OK.
I can’t believe, Mr Blunkett, that this government has spent £500m a year on a war in Iraq, £4.5bn compensating farmers, hundreds of millions every year helping asylum seekers, even making tens of millions of pounds in shortfalls up in their own pension schemes, even making retrospective payments, and not help us.
Our only crime was to do what we were told by you people and you’ve totally let us down Mr Blunkett. I’m very sorry but I have to say it – this government, a Labour government which I’ve supported all my life, has totally bloody let us down. I’m sorry for swearing but that’s the way I feel.
Others: Here here.
DB: Mrs Cheshire.
Marlene Cheshire: David worked for Dexion for 31 years, became very ill in March 2003, the firm went down in June and things just went from bad to worse. We’ve been promised by Malcolm Wicks and Tony Blair that terminally ill people would receive their payments but I’ve had nothing.
David died on July 5. Two hours before he died I told him that we’d got the pension, just to let him go in peace. And that’s made me so, so angry. I’ve not received a penny.
JH: That a terminally ill man felt the need to protest in the street to try and obtain justice in the UK today is a disgrace.
RA: These are good people, these are decent people. They are the bedrock of our society and have done what they were told and they trusted the system.
DB: Of course they are. I’ll try and address the issues but I’m not going to get involved in a party political argument this afternoon, it wouldn’t take us any further.
I think we must assume that I have as much goodwill, Ros, as you do, care as deeply for the people round this table as you do.
Mrs Cheshire, we commenced the (FAS) unit last week. Trustees need to get in scheme details very quickly and we can make the interim payments as quickly as we can. The task now is to ensure the FAS unit does its job, but this is not solving the broader problem, I’ll come to that in a minute. For those who are outstanding like yourself as a widow, it is crucial that the scheme gets in the details to the FAS. I’ve already indicated that they’ve absolutely got to give priority to those in danger of dying before they get the scheme, in the same as David did, and to those who are bereaved in this same way you are. We need to do that as quickly as possible this side of the New Year.
We understand the anger that the MFR set up in 1995 did not achieve the results that the previous government wished it too. I understand that. I think they did so with goodwill and I think what’s happened since was done with goodwill. I don’t think there’s been a single minister or official who has somehow acted in bad faith.
Clearly things have gone very badly wrong and the collapse of the £250bn that was wiped off the capital markets four or five years ago was a dramatic and devastating impact on the actual value of what was previously seen – understandably – by trustees as being sufficient security.
I’ve got to try and work out, in the months ahead, whether there’s anything more we can do over and above the new regulations, the regulatory body, the PPF and the limited help – I accept that it is limited – that the FAS is providing.
I want from this afternoon to have positive ideas back on how we might address those issues. There’s no point in saying that we can pick up the pieces in every eventuality in every collapse of a scheme. We just cannot do that. It’s not open to government to be able to do that – not just because it’s not feasible within pensions but because the same demands would be made for insurance and all sorts of other commitments.
RA: It’s not the same.
DB: I do know it’s different, which is why I’ve just said ‘within the parameters’.
We’ve already given a commitment, my predecessor fought like hell to get a limited scheme up off the ground, my immediate predecessor indicated that obviously in terms of the finances that would be required we need to look at this as part of the broader spending review. I’m indicating this afternoon that it’s ideas on how you can deal with the tragedies that have been enunciated around the table, where people have paid in for very many years and then seen absolutely nothing at the end of it their foregone wages disappearing, how we can look at what the cost can be, what the liability might be, separate from the attack that’s been launched, Ros, on whether we were liable as government past and present.
RA: I’ve been trying to do just that for the past three years, secretary of state.
I’ve spent so much time working out how this could be done at minimal cost to the taxpayer, because obviously we understand that the taxpayer’s money is precious and has to be used wisely...
JH: Excuse me Ros, we are the taxpayer. We are not divorced from being taxpayers.
RA: No of course John, I quite accept that. But if the schemes were to use the assets that they currently have – or did certainly have two years ago when we started this exercise – pensions could be paid out on an ongoing basis and could have been paid out for the last two years. There is money in the schemes, there is money in the bank to pay these pensions. ASW has got enough money in it to pay for 15 years before the government need to top it up.
Other schemes have got enough money for at least seven to eight years, paying pensions as they become due – full entitlements – for everybody. If you do it on an ongoing basis one of the big problems is that if the schemes give the money to an insurance company to buy bulk annuities today, first of all there’s only one provider left in the market pretty much, so the value has gone down, second of all you’re giving away the next 30 to 40 years’ of pensions money now, and there’s nothing left to pay pensions on an ongoing basis. If we minimise the cost to the exchequer by doing this year by year as pensioners come to you, then people come, they claim their entitlements. If you have cut-offs and so on I’ve suggested we can try and work out a scheme. It will cost less than £100m a year but you need that ongoing commitment that that money will be there. The taxpayer can afford it and I believe this country must do it. It needs to be done in a different way from how the FAS is working.
DB: Well you’ve put your finger on the issue of where you make cut-offs. Wherever we make a cut-off you end up with people outside it. You sometimes miss it by days. There’s going to be tragedies wherever we draw the line and if we don’t draw the line it leads to unlimited liability.
JH: The injustice occurs because you’ve now drawn up another set of rules that some people are in, some people are out, and we have to jump through hoops to actually be eligible for this FA scheme. I think we are the result of government inaction back in 2000. The right thing wasn’t done then, and what you’re saying this afternoon is that the right thing is going to be done now.
DB: I haven’t said anything. I’m trying to listen to you rationally and take on board your the heartfelt plea you’re making. I’m not interested in an antagonistic debate.
RA: I’d like to concentrate on the positive, secretary of state and I’m so encouraged that you’re asking and listening because I do believe this offers a realistic solution. This is not an unlimited liability. This is a defined group of people who, since 1997, have been so badly affected.
Now I originally thought that perhaps what the government was saying was ‘we can’t do anything right now, we have to wait for the PPF to come in’. Before the PPF you would have had an unlimited liability because there would have been no end point but we now have. It’s not an unlimited liability because there won’t be any more schemes to join them. You start in 1997 and you finish in April 2005. That’s it. These are the only group of people who were told by government that they would get a specific level of pension out of their scheme. Anyone in a personal pension or insurance arrangement was never told ‘this will deliver you X’. These people were. We haven’t even talked about the portion that the government called a guaranteed minimum pension which they’re not even getting – that came from their contracted out state rights. This whole thing is an area we could settle.
DB: I do know what a trauma and a history the whole pensions system has been. Understandably we’ve concentrated entirely one area today but we’ve been picking up the pieces on pensions mis-selling since 1997 to the tune of £11bn.
JH: We feel that we are not valued. If we were valued, you would sort this situation out tomorrow. But we have no value.
DB: Well I think my predecessor but one, Andrew Smith, did value you and fought like hell to get the FAS scheme off the ground. It may not be adequate and it may not be what you wanted but it certainly took a big effort on his part and he did care about it.
I think we need to look at the regulations in relation to those schemes that are still solvent that are causing difficulty which we referred to.
JB: We are putting our trust in you Mr Blunkett.
DB: Yeah well I’m not going to be able to work miracles. I’m prepared to listen and prepared to go back and look at the issues that we’ve debated. What I’m not prepared to do is to make a promise that turns out to be false. I think you’ve had enough of false dawns.
I’m glad we’ve got the thing (FAS) up and running now. The issues we are raising this afternoon are obviously the profound ones for the future. What I’m saying to you is I’ve listened. I’ve taken on board entirely what you say, every single one of you I accept has had a raw deal. I accept that there are thousands of people out there that have had the kind of heartbreak that has been described this afternoon, including those like the gentleman on your left Ros...
RA: John Benson
DB:...Who has worked for 41 years and suffered health and family problems as a consequence. All of that I understand and I feel.
I think if we presume that there’s no magic wand but that I’m not ignoring what you’re saying we might leave the room with a degree more fellow-feeling that you came into it with. I felt that when you came in, you felt that government didn’t give a damn and wasn’t listening. And we are.
What we also need to do is be absolutely clear with everyone just what particular thresholds would cost. I think we’ve all accepted this afternoon that whatever happened in the future of the FAS, when you move the goal posts there will still be people outside it. We need to be clear about what the costings would be on those so we don’t delude ourselves. I think we should start from that and I would happily talk to the chancellor about what the implications would be.
RA: The longer this gets left unsorted, the higher the costs become. The more schemes that give their money to the insurance companies to buy the annuities, the higher the cost will be for taxpayers. My plea has always been to get schemes to the point of wind-up but not buy annuities. At least we will have all the information but we wouldn’t have given away all the assets. So far that’s fallen on deaf ears.
DB: Well members of parliament have approached me on that specific issue over the summer and I’ve met with them and talked with them about it.
JH: I fail to see how you can restore trust in pensions – and politicians for that matter – when this issue remains unresolved.
DB: Well I think it would be a lifetime’s work to restore trust in politicians I fear, Mr Hayter, but I feel it is my job to ensure that, whatever we do with pensions we do restore confidence.
I’m very grateful to everybody this afternoon, I’m grateful for the way you’ve approached this meeting. I’ve indicated that I’m not simply sitting here and saying ‘that’s it, there’s nothing more that can be done, please go away’. I wouldn’t want to do that and again I repeat, there’s no point in making false promises, you just create even more disillusionment. But I will take away what’s been in said and I will keep in touch with you.
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The Commencement of the FAS
by Dr Ros Altmann
The FAS started official operations on September 1st and is collecting more data on schemes. They claim they are acting quickly but I feel that the issue has rumbled on for far too long and the FAS will simply not be able to help enough people, or even give enough money to those it will help. The Government should be compensating everyone who has lost their pensions, properly and fully, rather than continually delaying payments, introducing exclusions and getting the trustees to fill in yet more forms, which all depletes the value of the schemes assets and leaves less for the members.
Obtaining data for schemes which have already completed winding up will be more difficult, since trustees may not have kept records after windup finished and, even if they have the records, who will pay for their time to send them to the DWP. Individual members of these schemes may need to write to the FAS direct and let them have their details.
It is hoped that some initial FAS payments will be made before year-end 2005, but this may only be the initial 60% figure for the terminally ill and those past state pension age, rather than the 80% originally announced.
Of course solvent employer schemes are still excluded and only members within 3 years of scheme pension age are eligible at all. This means less than 1 in 5 of those affected are likely to get any help from FAS and there is no word on anything for the rest!
I do hope that the Parliamentary Ombudsman will be able to help persuade the Government to rectify this dreadful social injustice properly and finally give you all the pensions you were told were safe and protected by law.
FAS REGISTRATION
The following is a description of what will happen next.
September 1st is the day the FAS officially started operation. It is asking trustees to register scheme details again, this time formally. They are planning to ask trustees to provide information on the schemes by completing Form FAS A1. You can find a copy of this detailed 12 page form here
The aim of this exercise is for trustees to confirm the scheme details and for the FAS to then use this information to decide whether the scheme does, or does not, qualify for FAS eligibility. The speed with which the FAS can decide whether a scheme is a qualifying pension scheme will depend largely on the quality of information and evidence supplied by the trustees. Much of the information required is extremely detailed and requires a great deal of supporting paperwork. Some schemes may already have supplied everything and will be asked to confirm the data already held from the earlier data collection exercise (under signature) whilst others - which didn't provide answers to everything in the exercise - will be asked to provide a full set of information. There are regulatory requirements on the trustees to comply.
Once the FAS team has decided that a scheme does qualify, it will publish the name of the scheme on its website under the 'List of qualifying schemes'. If it decides that the scheme does not qualify, it will publish the scheme name on its website under the heading 'List of non-qualifying schemes'. At the moment, there is a list of 380 'potentially eligible' schemes, but none of these is confirmed as having qualified yet.
If the scheme is approved as qualifying for FAS, the trustees will then be asked to fill in another questionnaire, which will be used for providing the relevant data about individual members who may qualify for FAS money i.e. the names and details of people who were within 3 years of scheme pension age last May 2004. This will probably be done by completing an electronic template and the FAS has issued an indicative list of the sort of member data they need, as Annex C of their publication 'The Financial Assistance Scheme - An In Depth Guide for Trustees and Pension Professionals', This publication can be found here and you will see that the data requirements are quite extensive.
The FAS tell me they certainly intend to prioritise payments to the terminally ill and survivors, including widowers and - when appropriate - surviving civil partners.
The priority in the early months of FAS operations is to make sure the FAS team know about schemes, that they are notified within the 6 month period between 1st September and 1st April 2006 and that therefore members can be assured as to whether or not they belong to a qualifying scheme and might expect some help. Once they have done this, they say they can concentrate on collecting member data.
They confirmed to me that this does not mean they will delay asking for names of individuals who might be entitled until they have all scheme data in. They assure me that once they decide an individual scheme is a qualifying scheme they will start collecting member data for it and assess individual awards straightaway. I did ask why they could not ask trustees who were ready, to send the individual member data at the same time as the scheme data, to avoid any unnecessary delays, but the FAS said they 'don't think it would help - or advance our timetable considerably - to take in member data at the outset, although by referring to the FAS leaflets, schemes will be able to get a clear idea of what we'll be requesting and make preparations to get it to us as soon as it's requested.'
They say they will be asking for member data as soon as they have made decisions on whether a pension scheme qualifies. They also said 'Given our stated aim of making payments before the end of the year, we'll need to be requesting member details in September / October to allow us to make individual assessments and write out to members for payment details etc in good time.'
The timescales do - to a large extent - depend on the ability of trustees and administrators to get the FAS the information they need in a timely and usable fashion.
SUMMARY
The FAS is simply not good enough! The FAS team is doing its best to operate efficiently, but its remit is flawed. There is just not enough money to provide satisfaction to members who have suffered so much. The FAS is only designed to help a fraction of the people affected and will only give them a fraction of the pensions which Government assured them were safe and protected by law. Many of these members have lost their entire life savings and are being treated appallingly by Government at the moment. It is Government's fault that they were denied an informed choice about how best to save for their futures. They did what they were told, trusted the system and now, when they have ended up suffering because they believed what they were told, the Government says 'hard luck' and offers to 'help' just some of them, but also attaches more and more conditions which have delayed the help. This is just not good enough. Full compensation is what needs to be paid here.
In the meantime, these are the FAS criteria:
* Only schemes whose sponsoring employer is insolvent
* The scheme must have started winding up between 1 January 1997 and February 2006
* Only members who were within three years of scheme pension age
* Only members of schemes which have finished winding up
* Members only receive assistance when they reach age 65 (even if scheme pension age was 60!)
* Members only receive 80% of 'core' pension
* No inflation linking will be paid
* The benefits will be capped at £12,000 a year, even if the pension lost is worth £20,000 a year or more
* Only 60% will be paid initially to members in most urgent need i.e. the terminally ill or those already past state pension age.
* * * * * * * * * * * * * * * * * *
Press Release from the DWP 1st September 2005
Trustees who have not yet submitted information to the Government’s £400 million Financial Assistance Scheme (FAS) now have six months from today to apply. The newly established FAS Operational Unit is calling for all trustees and administrators who think their schemes might be eligible to contact them as soon as possible.
All schemes that have already supplied data are being contacted directly by the FAS Operational Unit and given the opportunity to confirm the details held and provide any additional information required.
Minister for Pensions Reform, Stephen Timms, said:
“We have already made a lot of progress in collating all the necessary information and the notification is the formal step towards being in a position to decide whether a pension scheme is eligible.
“With the FAS Operational Unit now up and running we are looking forward to making the first payments by the end of the year.”
This call for information is aimed primarily at scheme trustees and administrators. Members of schemes who feel they may be eligible should contact their trustees for further information rather than the FAS Operational Unit. Once information has been collated from the trustees, the Operational Unit will then write to all eligible members of qualifying schemes to let them know what payments they can expect.
Trustees should contact the FAS Operational Unit on 0845-6019941 to obtain form FAS A1. This form should be returned by 28th February 2006. Individuals whose scheme have already wound up and therefore have no trustees, can also complete the notification form for their scheme.
Information for individual scheme members is available on the FAS website. This will include details of schemes that have completed notification and which are qualifying pension schemes. There is no need for scheme members to contact the Operational Unit at this stage if their scheme is listed on the website. If it isn’t they should contact their scheme trustees.
* * * * * * * * * * * * * * * *
Richard Nicholl (Burgess) wrote an open letter to Tony Blair as below. A copy of this letter was sent to the media.
To:
The Rt. Hon Tony Blair, MP
Prime Minister
10 Downing Street
London
SW1A 2AA
16th August 2005
Dear Mr Blair
In May of last year, you will recall that you had become very frustrated at the lack of action by The Treasury and The DWP over the injustice of some 85,000 workers who had lost their promised pensions, despite various Government assurances that Final Salary Schemes were safe, guaranteed and protected by law.
A potential Commons defeat for your Government in May 2004 precipitated the hastily conceived Financial Assistance Scheme, which ‘promised’ a totally inadequate £400m over the next 20 years to these victims, which equates to £235 each per year!
We are appalled, therefore, that despite your own involvement, no one has yet received a single penny from this fund. Worse still, the majority of those affected are excluded from it anyway! Following the initial anxiety, anger and confusion that these people have suffered, the continuous delay and procrastination by your officials is frankly deplorable.
As usual, when we look underneath the headlines, we find the devil in the detail:
There is no provision for any annual inflationary increase. So far the scheme will eventually only give anything to those within three years of retirement, and that will be limited to 80% of the amount that had been expected, with a cap of £12,000 pa. The scheme has to be completely wound up before full payments can be made. The recipients must be 65 to qualify for any payments, despite many of them having planned and saved for an earlier retirement. There is no provision at all for anyone whose company is still solvent. The net result of these barriers to assistance is that even when the scheme is finally up and running, only an estimated 15% of the 85,000 workers will receive any help at all. It is not more ways of splitting the five loaves that is needed, it is more loaves!
We have lived for several years now with your various Pensions ministers declaring that they will not give ‘false hope’. Yet, consistently, that is exactly what they have done. A Parliamentary Ombudsman report on the administration of pensions’ protection, due in July, has been postponed because of ‘late submissions by the Government’. Yet another delay causing even more stress. Unfortunately, some people have already died waiting for help, having received none of their pensions, leaving distressed and bewildered widows fearing for their financial futures.
The announcement of the Financial Assistance Scheme was initially heralded as a great step forward for the 85,000 people who had saved for their retirements and lost everything. It was a sensible move to restore confidence in savings and pensions. Unfortunately the reality is something completely different. While gullible MP’s and some of the public may have been duped by the headlines, we continue to live with the lack of any credible assistance. The only people to have gained out of the FAS so far are the actuarial profession, the pensions’ provision companies and the civil servants setting it up. The continued and irresponsible purchasing of annuities with these depleted funds is completely insane.
Mr Blair, can we ask you just two questions: Are you proud of the way your New Labour Government has treated these honest, hard working and genuine victims? What are you doing to make sure that all of them are helped properly, once and for all?
Yours sincerely
Richard Nicholl
www.pensionstheft.org
On Thursday 18th August 2005 The Telegraph reported:
Pension group blasts Blair in open letter
By Faith Dewey
Frustrated members of company pensions wound up with deficits have attacked the Prime Minister, claiming that despite his involvement in the scheme to help them, no one has received a penny. In an open letter to Tony Blair, members of the Pensions Action Group described the "continuous delay and procrastination" as "deplorable".
Richard Nicholl of the PAG writes: "A potential Commons defeat for your Government in May 2004 precipitated the hastily conceived Financial Assistance Scheme, which 'promised' a totally inadequate £400m over the next 20 years to these victims, which equates to £235 each per year."
The scheme covers the 85,000 members of final salary schemes which failed before the Pensions Protection Fund came into effect in April this year. The Parliamentary Ombudsman's report on the administration of pensions' protection was due in July, according to the PAG. A spokesman for the Ombudsman would not comment on whether it had been delayed, but added: "We would hope to have the report finished by the end of the year."
A Downing Street spokesman said: "Downing Street will consider the letter on its receipt."
* * * * * * * * * * * *
Meeting with David Laws, Liberal Democrats shadow work and pensions secretary Thursday 30th June 2005
Minutes by Joanne McCullough (Professional Pensions)
Attendees
Ros Altmann
Dave Allen, Dexion
Robert Butler, Dalgety
Paul Holley, Perivan
John Hayter, ASW
Dennis Thayre, ASW (retired)
Jean Wade (deferred widow)
After a brief welcome, Mr Laws asked each member attending the meeting to introduce themselves and explain what had happened to their pension. First he heard from Ros Altmann, who was speaking on behalf of all wind-up victims.
Ros Altmann (RA): The government is aware of this injustice and they need to take responsibility for what is happening. We would like to take the opportunity to explain to you what is happening. We want to give you the opportunity to ask questions. And we would like to ask to know why early day motions (EDM)s put forward to try to help these people in parliament were not signed by you.
David Laws (DL): It was a matter of principle because other parties may tie it back to our plans for public expenditure. Therefore I virtually never signed any EDM because parties total everything up and ask how you are going to fund it. They may also question why something I signed my support fort did not end up in our manifesto. If it is not in our manifesto it looks like we have been making promises that we can¹t keep. So as a rule, I don¹t sign up to public expenditure motions not while I was in the Treasury team.
RA: What we are talking about is not a big lump sum up front. Those who say it would be 2p on income tax is absolute nonsense. This will cost around £100m a year, ongoing for about 40 years. That money in the context of what we spend on pensions is viable. You do not need to buy annuities. We believe we should stop schemes buying annuities on wind-up because it is a waste of scheme assets.
Jean Wade: My husband worked for Allied Steel and Wire (ASW) for 28 years. Just after it wound up he was taken ill and 15 months later he died. The government have robbed me of the pension that he saved so hard for. Now I am left to live on a pittance of about £50 a week. It was a final salary scheme that he had to join as it was a condition of employment. It was 102 percent funded under the Minimum Funding Requirement, so this was a so-called fully funded scheme. The company went into receivership on the 18th of July, 2002.
Dennis Thayre: I would have received a pension of £12,000 a year before the receivers said I can¹t have it. The company asked me to stay on as a favour. During that period it went into receivership.
RA: This is a pension that the government and the Financial Services Authority said was guaranteed and safe.
John Hayter : This was a pension that we had to join and opt out of SERPS. We were forced into the position and why should we change our pensions when we were told by the government and we were advised to stay in it.
Paul Holley: I had to join the scheme. I can not remember any government papers saying my pension might be at risk. I went to financial advisers and they told me it was a fantastic final salary scheme and that there was no need to come out of it. We had no idea there was any trouble. It went into voluntary administration and 80-100 people were affected. We now have people who contributed for 35 to 38 years getting just £17 a week.
RA: The government forced members into schemes by penalising companies that did not offer schemes. Governments wanted to encourage as many people as possible to join and stay in the schemes. It all looked hunky-dory. There were no regulations or protections in place because the government were frightened that doing so would put employers off offering schemes, and put the costs of pension provision back onto future governments. The 1995 Pensions Act told people their pensions were safe. It took away the protection that was there before and put in the priority order which means these people are paying for other people¹s pensions. There is still nothing to protect the GMP. Words like “safe”, “secure” and “guarantee” were used. If a financial services company did that it would have to compensate. How can it be one rule for government and another for everyone else? There is truly an obligation.
Robert Butler: My father had over 25 years in the Dexion scheme and it was subject to a management buy-out. There was a compromise agreement and they didn’t take on the pension scheme. They left the scheme severely under-funded. My father expected to retire at 55, now he expects to do that at 65. More than 700 people have been affected in this way.
Dave Allen: The company went into receivership in 2003 and the scheme wound up. I was a member for 37 years and would have had a full 2/3rds pension. In 1999 it had a £5m deficit and the company agreed to top it up. If I had retired at 60, I would have had a £18,000 a year pension. We were informed we would get nothing. Two months before I was due to retire in May I was informed that I would get no pension.
RA: This is the biggest social injustice I have ever seen. These are people who did what they were told, who played by the rules and who didn¹t want to live off the state. They believed they were doing the right thing, they checked out that they were doing the right thing. Every single person and piece of material said they should stay in their pension and that their pensions were safe. Yet government was removing security. How as a society can we let this happen?
JH: What we want is 100% compensation.
RA: We are trying to persuade the government that it is responsible for this. After the prime minister stood up and said he wanted to make sure these people did not face a continued loss of pension, he asked the chancellor to sort this matter out. Amicus and Community agreed the Financial Assistance Scheme. At that time it would have cost £65m to £70m a year. Now there are 85,000 people. The Treasury agreed £400m over 20 years, which was a bit of a con trick. It has told the DWP to find the money in its budget. Everything to do with the FAS has been cruel. Nobody has received a penny out of the FAS.
JH: Stephen Timms says the government is not responsible for this. All he wanted to do when we spoke to him was change the subject. He thought the FA scheme was a panacea. He also indicated that the Treasury did not want to do anything. There are more people affected by this than the Maxwell scandal. The government needs to acknowledge they are responsible for this.
DL: The Parliamentary ombudsman’s report will be very important in establishing who is responsible. When the previous governments were trying to persuade people to have employer schemes rather than rely on the State I am sure a lot of them thought it was in the public interest. They also wanted to spread costs onto employers. The issue is more about a failure to understand the balance between private and state responsibility, rather than mis-selling. If we had a system where you were free to decide which system you went into and government didn¹t say do it this way or that, we would not have so much regress to the government. There are still circumstances where people saved for 40 years of their life and feel devastated to lose that pension and who are looking to the government and saying “Is there nothing you can do?”. It is important that this is not a campaign by one political party. The more we can pin down the constituents and MPs and unions the better.
RA: Solvent employer members have been just as wronged, or more so as the insolvent members. It seems totally unjust to leave them out. Employers have a duty to support their schemes. The government has said they take a “dim view” of those employers that do not, but a dim view does not pay the bills. The money is in the bank but those people who desperately need it are not having it released to them. The government is saying that they can¹t tell trustees what to do.
DL: On the issue of getting them to change their minds, we need to wait on the report by the parliamentary ombudsman and make sure this is delivered by the start of the parliamentary session in mid October. We want to force the government to admit they have made a mistake, they have let these people down. They were careless and failed to recognise it. The sooner this is done the better. This goes to the heart of government how ministers and officials have failed to understand what the impact of their actions will have on regular citizens.
* * * * * * * * * * * * * * * * * * *
Community Trade Union Press Release 23rd June 2005
Union condemns Government refusal to support ASW Legal case “fast-tracking”
Community has condemned the decision by the Government, in a Court hearing yesterday, to refuse to support a request for the Judge to contact the European Court of Justice requesting that they give priority to the legal case the union is taking against the UK Government on behalf of members formerly employed by the ASW steel company.
Commenting on the action of the Government’s legal team, Michael Leahy, General Secretary of Community, said:
“Nearly a thousand of our members lost their expected pensions through no fault of their own when ASW had to wind up their pension scheme because of their insolvency. We believe that if successive UK Government’s had properly implemented the European Insolvency Directive our members at ASW would not have lost their pensions as well as their jobs.
“Following legal advice, Community and Amicus embarked upon a legal case to determine whether the UK Government did adequately implement the Directive and, in November last year the High Court decided that the case should be referred to the European Court of Justice (ECJ). All that needed to be done next was for the Government’s legal team to agree the terms of reference – the case that the ECJ should adjudicate on – which should have been quick to resolve. For over six months they have tried to delay the reference to the ECJ.
“At a High Court hearing yesterday the reference was finally agreed and the union’s legal team asked the Judge, Mr Justice Evans-Lombe, to contact the ECJ to urge them to hear the case urgently. The UK Government’s legal team said they could not support this request and, since such a request needs the support of both parties, the Judge said that he could not make the request to the ECJ.
“For nearly three years, ex-ASW employees and their families have been in limbo, not knowing how much they will have to live on in retirement following a lifetime of hard work. Sadly, some of them have died before they had the opportunity to draw a pension. I believe that it is disgraceful that the Government’s legal team did not support a request to fast-track the legal case, which may well decide whether the UK has a responsibility to pay the expected pensions of the ex-ASW members.”
Article 8 of the Insolvency Directive reads:
“Member States shall ensure that the necessary measures are taken to protect the interests of employees and of persons having already left the employer’s undertaking or business at the date of the onset of the employer’s insolvency in respect of rights conferring on them immediate or prospective entitlement to old-age benefits, including survivors’ benefits, under supplementary company or inter-company pension schemes outside the national statutory social security schemes.”
If successful, the case will set a precedent for the estimated 85,000 other workers throughout Britain who have lost pension benefits when their employers have gone out of business.
* * * * * * * * * * * * * * *
Pat Sargent's Post Election Campaign notes
Although still to cash some of the cheques, having now received the final donations towards election expenses, I just wanted to summarise these for everyone's benefit, and to say an immense 'THANK YOU'.
Having dealt with the necessary formal Return, and with (hopefully) due respect for everyone's privacy, I'm so grateful to be able to report that a total of £1,090.00 was received via the Group / associated contacts; enabling not only the forfeited £500.00 deposit to be paid, but also a substantial contribution (£404.00) to be made towards the travel and overnight costs of fellow Kirkcaldy 'volunteers' - our additional costs being substantially met through a local 'whip-round' which raised a further £325.00!
THANK YOU SO MUCH
Most importantly, though, I'd like to thank those who've shown such inspirational generosity of spirit during such difficult times for us all. Again, I wish to respect people's privacy, but have been affected by much recently (as those close to me already know)... For example, the many 'unsung heroes'; some of whom we've never even met, and who physically can't attend protests / meetings or afford much - but wished, nevertheless, to help... the brave souls whom we've been proud to meet and protest alongside, some of whom are already widowed - yet still find strength... and the oh so courageous couple whose abiding strength of character helped me find the determination to at least 'have a go'... Good, good people, whose futures I for one intend to continue to work with others to help secure - reminding Gordon Brown, in his own words, that our plight is "simply wrong" - a "gross injustice", and must be corrected!
Should you be able to help with this latter, a sample letter to MPs generally has been drafted, echoing our Kirkcaldy call for him to act - now - and it's intended to urgently circulate this as widely as possible. You might also be able to help in other ways. Please make yourselves known to the Group if you can help.
Apart from an Agents' / Party 'de-brief' in Glenrothes; our plight will be further recorded for posterity, as all candidates who produced and distributed specific material, i.e. our leaflet, 'speech', extended 'statement', etc. have been invited to contribute same to long-standing official collections, both for preservation and use by media, researchers, etc. (Good job we 'kept' some spares...!)
Thanks again.
Pat
* * * * * * * * * * * * * * * *
Pat Sargent, who bravely stood against Gordon Brown in the general election, made the following statement which she used as the basis of her post election speech:
GORDON BROWN IS CALLED TO ACCOUNT OVER WORKERS' DESTROYED PENSIONS
Pat Sargent, (a wife, mother, grandma, worker, saver and now campaigner) is truly sorry that she must challenge Gordon Brown before his electorate in Kirkcaldy and Cowdenbeath, on the single issue of workers' destroyed pensions.
Questioning Gordon’s current inadequate ‘assistance’ proposals for pensioners, Pat is an independent, non party-political candidate - as she knows that, for the tens of thousands of families affected (including her and husband Keith's), this issue really is beyond politics. It deserves true cross-party support to finally resolve it.
Though she's unfortunately constrained by time and distance, the recent inspiration for her stand has been the plight of some of the Pensions Action Group’s widows, as well as witnessing a terminally ill, courageous fellow-campaigner still having to plead with the Government for his stolen pension rights.
Gordon Brown speaks with conviction of his vision for those who work hard and ‘play by the rules’. We all played by the rules that Gordon set, and have found ourselves without the pensions we were told were safe and protected by law. At last year’s Party Conference he himself acknowledged that our plight was "simply wrong", and promised to “work with the unions to do what it takes to tackle the gross injustice of workers who through no fault of their own find their pensions have been destroyed.”
Fine words, but to date the Financial ‘Assistance’ Scheme (FAS) fund he had already made available is now proposed to be divided between just a small proportion of the affected families. The FAS doesn't have anywhere near enough money made available to it, and is certainly not the ‘justice for all’ his speech proclaimed.
So, we must again ask you, Gordon, to check your calculations. With over 80,000 loyal, hard-working British workers in more than 400 companies seriously affected, including. UEF, Albert Fisher, Blyth & Blyth, Motherwell Bridge, Richards, Dexion, ASW, BUSM, Kalamazoo, Samuel Jones…, why have you left so many out of your plans? The £20m per year, even with a promised review, will hardly begin to restore the hard-earned pensions of even the few - and what about all the rest, Gordon?
Why are you still insistent that our scheme funds’ remaining assets be so scandalously wasted buying expensive annuities, instead of being ‘pooled’ and pensions paid, as per the new Pension Protection Fund (PPF) - which our campaigning helped create?
Above all, why weren’t such pensions safe and protected by law, as we were told they were? We now understand that the actuarial profession warned in July 1997 that, “Members could be lulled into a false sense of security thinking their fund was 100% funded when it could actually be considerably less than that.” This, post your tax changes, Gordon, but clearly before the major stock market falls, annuity rate issues and your relaxation of the 1995 Act’s centrepiece solvency test, the MFR. Sometimes there’s been no pension at all!
Why weren’t workers warned, Gordon?
Commenting further on her experiences canvassing Pat also stated:
Of our necessarily brief stay in the Fife constituency we are pleased on how our faith in human nature has been much restored. "If the wonderful, warm, open people we've met and discussed this issue with are at all representative of the constituency, we couldn’t have chosen a better spot to attempt to pin Gordon down. This constituency must truly be a pleasure to serve."
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Updated position of Solvent Company schemes in wind up.
Richard Nicholls 24th April 2005
Despite being assured by Malcolm Wicks and others that they were not going to give false hope to any victims of scheme wind ups, we have been given precisely just that.
The Government seem to delight in spinning out bold headlines which will pacify the majority, including most MP’s, while leaving the soul destroying detail in the small print for the actual victims.
As well as an inadequate Financial Assistance Scheme (FAS), there were various groups of deferred pensioners that have been totally excluded from eligibility for the Scheme. This includes members of schemes where the sponsoring employer is still solvent. One small allowance is that if a company has become insolvent since commencement of wind up, then it will be included in the FAS.
All the rest of us, and we know of 8,400 people from 18 schemes, are denied any help at all. We are not eligible for the new PPF either. We are left out in the cold, but have exactly the same problems and hardships as our colleagues from insolvent companies.
The Government wants it both ways. It has not, and will not, provide any legislation that would make a sponsoring company legally responsible for it's full pension liabilities, but at the same time excludes the victims from any assistance. Mr Blair, in his election pledges, has spoken of ‘Labour values of security and opportunity for all Britain’s hardworking families and pensioners’. It is time that he put words into action.
The ‘solvent group’ has continued to join the pensionstheft’s protests, and has also carried out a vigorous campaign of letter writing to, and meetings with, various Government officials at the DWP, including Alan Johnson, Malcolm Wicks and the FAS Team lead by Mike Le Brun.
From a political point of view, the Conservatives have promised to pay us full compensation using orphaned assets, while the Liberals have openly declared to use taxpayers’ money to help us. Both of these parties have stated that they would not discriminate between solvent and insolvent groups. Labour, meanwhile, continue to deny us any help, despite some encouraging and welcome support from individual Labour MP’s.
The unions are now becoming more supportive, on a local basis, following the closure of the APW and Henlys schemes. Both these companies have a high number of union members, and their representatives have been vocal in supporting us.
We attended the Pensions Summit, organised by Sandra Osborne, at Portcullis House on 21st March 2005, and were able to present our views to the gathered audience. Support was voiced by Nigel Waterson, Conservative spokesman for Pensions, Steve Webb, Liberal spokesman and John Denham, the Labour MP who has APW in his consituency.
We had arranged a meeting with Alan Johnson and Malcolm Wicks for 19th April, specifically to argue our case, but this has been postponed until after the election.
Our arguments for inclusion in the FAS are basically:
* Our Companies are mostly only still solvent because of compromise agreements made to allow the company to continue trading.
* There is no effective legislation forcing companies to make up any deficit in the funds.
* The members and trustees of these schemes were all assured by Government that their funds were totally safe and guaranteed.
* Even the Guaranteed Minimum Pension is not guaranteed!
* Any assistance given would be given to the members, not the company involved, so no European anti competition laws would be broken.
* Our suffering and uncertainty is just as devastating as those members from insolvent companies.
We will continue to campaign very strongly. We have had assurance from the DWP that our meeting with the Secretary of State for Pensions will be re-scheduled as soon as the new Parliament is convened. We will continue to highlight our case to the media.
We are in solidarity with other members of the pensionstheft group, our fight is to achieve the same result, the restoration of 100% of what we have paid for!
The complaint to the Parliamentary Ombudsman is also being progressed, and she has details of several solvent company schemes. Her indication is that solvent companies will be included in any recommendations she makes to the Government about compensation. Her report is expected in July 2005.
For further information contact:Richard Nicholl
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Pensions Action Group Press Release 24th March 2005
Dispute over Pensions Action Group’s questions about FAS Implementation
Sandra Osborne, Labour MP for Ayr, held a pensions summit at Portcullis House on the afternoon of Monday 21st March. A separate press release about this summit will be released shortly.
After the summit had finished Tony McWalter, Labour MP for Hemel Hempstead (who had not attended), came into the room and vociferously demanded the withdrawal of a previous Pensions Action Group press release which raised serious questions about the implementation details of the FAS. He described the release as appalling, and stated that it caused unnecessary concern for those outside the FAS window. He demanded the Pensions Action Group withdraw the release and issue an apology
The Pensions Action Group believe Tony McWalter is objecting to the highlighted phrase in the sentence:
It is thought that some 15,000 people will benefit, but this still leaves well over 50,000 people with no idea of what pension, if any, they will receive.
The Pension Action Group responds with two simple questions:-
1) Will every person not in the window receive the same assistance as people in the window, with inflation protection for their extra waiting time?
2) Will there be any exclusions on the grounds of age? There are already exclusions for people with pensions under £500pa and we believe there may be a lower age cut-off as well
Unless the answer to the first question is an unconditional 'Yes' and the answer to the second an unconditional 'No' the concerns expressed in the press release are valid.
The Pensions Action Group thinks it has committed the cardinal sin of asking awkward questions in public
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Comments by Dr Ros Altmann about the recent announcements of details about the operation of the FAS
WHERE ARE WE ON THE FAS?
We have made a significant step forward in the past week, to help some of the victims of this dreadful social injustice. The DWP has pledged to pay 80% of ‘core’ benefits to those who were within 3 years of scheme pension age as at 14th May 2004, up to a maximum amount of £12,000 a year. This amount will be paid to these people for the rest of their lives, and there will also be some provision for spouse benefits. The money will not be paid by means of an annuity, because the DWP does not want to pay profit margins to an insurance company. Instead, the Government is committing to pay the money out of the Financial Assistance Scheme every year.
The DWP announced that there are 15,000 people within 3 years of pension age last May, and that 95% of these did not have core pensions above the £12,000 cap. A list of 380 ‘potentially eligible’ schemes has also been released. Of course it is vital that all the schemes included in the list are ultimately included in the FAS. To leave these people out again would surely be unthinkable.
At last, some of these good people now look as if they will get back at least much of the pensions they saved so hard for. Alan Johnson should be given enormous credit for moving us forward this far. So far, so good.
But, of course, this is only a small (but nevertheless potentially significant) step forward. There is a long way to go, to truly achieve justice for the victims of this pensions disaster and give all of them the peace of mind they deserve. So what are the issues still to be addressed?
1.The funding of the FAS
The Government has only committed £400million over 20 years to address this issue. The announced payments so far are likely to cost more than £400million already, so there will be nothing left for anyone else! If 15,000 members only receive an average of £2,000 a year pension from the FAS, this would already cost £30million a year! If an average of just 1 person in each scheme were to receive the maximum £12,000 a year cap, this alone would use up £4.5 million a year, before any of the other members receive anything. The FAS is clearly using up more than the £400million – particularly as it is committing to pay out for longer than just 20 years. It is vital that the Treasury agrees to fund this scheme properly and fully. It does not require a large sum to be found immediately and can be spread over a period of 40 years or more, with perhaps £75million each year.
2.What about those over 3 years away from pension age?
It is grossly inequitable to leave those who were just a few days or weeks beyond 3 years away from pension age without any certainty at all for their future incomes. Many of these people are already in their 60’s and feel dreadfully disappointed that others of similar age are getting some reassurance, while they are left in limbo. Without a commitment of more money, these people will find that there will be nothing in the FAS for them at all!
3.What about those who are in very poor health, or terminally ill?
There are some people who are terminally ill or have become severely ill, cannot work and desperately need their pensions on which to survive. If their company scheme were ongoing, they would be able to have an ill-health pension or early retirement, as they had been promised, but, just when they most need it, they find their decades’ worth of savings in a ‘safe’ pension scheme have not delivered, despite the Government reassurances they always received.
4.What about schemes winding-up with solvent employers?
The DWP has said that is will not include members of winding up schemes whose employers were and still are solvent. The Government’s rationale here is that such employers ‘have a duty to support their schemes’. This is simply unacceptable. The employers have complied fully with the law and the members are powerless to force them to put in extra money. The inadequate oversight of the MFR (the Government’s Minimum Funding Requirement, which was all that employers were required to meet when winding up a pension scheme) has meant that this funding measure is totally inadequate for delivering the pensions people were promised. Also, in many cases, trustees agreed a compromise deal, in order to save the company from insolvency, and now the pension scheme members are being penalised for this. If they had known that agreeing to save jobs could result in the loss of members’ pensions, they may have acted differently, but they were never told this.
5.What are core benefits? There is no indexation, what spouse cover is there?
There will be no indexation of FAS pensions, unlike the PPF, which will at least pay inflation-linked increases for the period after 1997. With inflation at 3%, the value of a level pension will halve in about 20 years. It is also not clear what cover there will be for spouses. The FAS will pay 80% of ‘core’ benefits, but does not define what these ‘core’ benefits are.
6.There is no tax free lump sum.
These people were promised a tax free lump sum, under their occupational scheme rules, but the FAS will not permit this. Many of them were relying on this lump sum to pay off their mortgages and are now in desperate financial difficulties.
7.Why is the cap so low?
A cap of £12,000 seems unfairly low. The Pension Protection Fund will cap benefits at £25,000 a year and pay out 90%, with some inflation-linking, so this level of FAS payment is significantly less than for people in future, who are now being warned what will happen to their pensions if their employer fails. These wind-up victims were never warned that there was any risk to their promised pensions! The DWP claims that the £12,000 cap is designed to ‘prevent higher pensions being paid to executives of failed companies that might have led to the companies failing in the first place’. This justification is unwarranted. Firstly, the top executives of the failed companies usually ensured that their own pensions were safe, either by taking early retirement, or transferring their money out. Someone earning £30,000 a year with 40 years’ service would be entitled to a pension of £20,000 a year, yet would be capped at £12,000, thus still losing 40% of their pension and all their indexing too. It is usually managerial level, rather than the top executives, who earn around £30,000 a year and it is so unfair to take their pensions away from them like this. These people are not responsible for the failure of the company. They should not be further penalised by such a low cap. Often, in fact, the top executives who these managers reported to, decided to split the company, using financial engineering or corporate ‘restructuring’ to offload a subsidiary, containing the pension scheme, then letting that subsidiary fail. Meanwhile the executives carried on running the other parts of the business, having jettisoned the pension fund and ruined these members' lives.
8.Why are the assets of the schemes still being used to buy annuities?
The Government says it does not want to buy annuities to provide the FAS pensions, because buying annuities entails paying a profit and risk margin to the insurers who provide them. It would be much better for members, and ultimately potentially cheaper for the taxpayer, if the scheme assets were not wasted on buying annuities, but could be used to fund ongoing payments, as will be the case with the PPF. If the annuities are not purchased, then all members should receive higher pension payments from the same pool of assets (since no risk margins will be taken out of the funds). The Government could pool all the assets and run the FAS alongside the PPF, with additional Government funding coming in to provide the pensions over time.
9.When will payments start, will they be backdated? What about those already retired – why not pay immediately where assets are available?
There is no word as to when payments from the FAS will actually start. It would be possible for many of those affected to actually receive payments straight away, because, for those schemes which have not finished winding up, assets are available and usually being held in cash or bonds. The trustees could start paying pensions, out of the scheme’s assets, to those already past retirement age now, instead of forcing them wait even longer. This would, at last, deliver some meaningful help to those who are desperately in need of the pensions they saved for and were told were safe, so that they can have some of their lives back.
10.What about ‘Guaranteed’ Minimum Pensions that Government told people they would receive from their contracted out benefits?
The Government must surely address the issue that many people are not being paid the ‘Guaranteed Minimum Pension’ which they were promised, as a replacement for their state pension rights. The Government told these people that this element of their pension was ‘guaranteed’. They were not told this by their employers, by financial advisers, or by their trustees, it was actually Government that called this a ‘Guaranteed Minimum Pension’ and it seems impossible to justify such a pension being neither ‘guaranteed’ nor a ‘minimum’. The DWP must take responsibility for this and it would be best if this part of the occupational pensions of the winding-up scheme members were taken back into the state system and then the FAS could provide an additional amount on top. Taking responsibility for GMP’s back into the state system would make the winding up of all these schemes much quicker and simpler and ensure that compensation could be delivered more efficiently. This would obviously be very expensive, but it is the only course of action which is fair and which may allow people to trust pensions in future. If the Government can tell people that they will get a guaranteed amount of pension and then refuse to honour that guarantee, the future for pension confidence seems shaky indeed.
THE BOTTOM LINE
The Treasury must accept that it is the Government’s responsibility to offer compensation, not just assistance, to these people and it must make more money available to ensure that this dreadful social injustice is remedied immediately. If it does not do this voluntarily, I hope that the Parliamentary Ombudsman will force them to do so.
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Press Release 7th March 2005
Pensions Action Group says that the Financial Assistance Scheme will still leave many people with no pensions
The Department of Work and Pensions (DWP) have just announced some details of how the £400million Financial Assistance Scheme (FAS) will operate. People within three years of their scheme pension age will receive 80% of their pension entitlement, up to a maximum of £12,000 a year (less than half the maximum payment under the Pension Protection Fund, which will pay out 90% of benefits up to around £25,000). Many people will thus receive far less than 80% of their pension.
Whilst the Pensions Action Group welcomes this announcement, it believes there are still many unanswered questions. It is thought that some 15,000 people will benefit, but this still leaves well over 50,000 people with no idea of what pension, if any, they will receive.
The scheme does not include anyone who lost their pension when their solvent employers wound up the scheme. These employers acted totally legally and the pension scheme members cannot force their employers to put in more money.
No protection against inflation will be provided. People will retire with a smaller pension than they were promised and will get progressively poorer with age. 3% inflation will halve a fixed pension in just over 20 years
The proposals often use the phrase "core benefits" without defining what this means. In all pension schemes the promised benefits include spouse's pension, indexing against inflation (at least from 1997), early retirement through ill health, tax free lump sums etc. According to the Pensions Action Group, these are all considered "core benefits"
The Pensions Action Group will therefore continue campaigning until its members’ full pensions are restored
Peter Humphrey, a member of the Pensions Action Group, said, “We note that Amicus and Community are still pursuing their legal action through the European Court, but this is likely to take several years and the investigation by the Parliamentary Ombudsman is continuing. We should not have to fight and wait for what we were told we could rely on. The Government has let us down, but has not accepted its responsibility here.”
Dr. Ros Altmann, who has been working with the Pensions Action Group to help remedy this social injustice added, “The Treasury has not accepted that much more money will be needed to restore the pensions to those affected. They must be offered proper compensation, not just some assistance, because the Government is responsible for telling them their pensions were safe, encouraging them to contribute and promising them ‘guaranteed’ pensions which they were relying on for their retirement. Society cannot just walk away from this issue and, if we want people to trust Government on pensions in future, this dreadful injustice must be remedied quickly.”
About the Pensions Action Group
The Pensions Action Group represents people who have lost most, in some cases all, of their occupational pension when their scheme was wound up, We speak on behalf of the 65,000 people from nearly 400 schemes who were told by the government that their occupational pensions were safe and protected by law.
Our aim is to ensure every affected person has full restoration of their pension entitlement
regardless of company,
regardless of date of joining the scheme,
regardless of the reason for the scheme wind-up,
regardless of length of service and
regardless of age.
We were told our pensions were protected by law and only want what we were promised,
Surely that is fair
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DWP Press Release 22nd February 2005
Workers closest to retirement are set to receive a top up to 80% of their scheme pension from the Financial Assistance Scheme, announced Pensions Minister, Malcolm Wicks, today.
Malcolm Wicks was announcing the latest details on FAS and confirmed that eligible workers who were within three years of their scheme pension age on 14th May 2004, when FAS was announced, will receive this level of assistance.
Given that FAS will apply to pension schemes that commenced winding up from 1st January 1997 until the introduction of the Pension Protection Fund, this means that depending on the pension age of their particular scheme, members currently aged between 57 and 73, should expect to get 80% of their core promised benefits. The money will be paid as a top up pension rather through the purchase of an annuity.
A list of the potentially eligible schemes – some 380 of them – that have so far provided data for the FAS was also published today.
Mr Wicks said:
“Workers who were a few years from retirement when their company went bust have been hit hardest – losing both their jobs and their pensions with little chance to start again.
“We urgently needed to give these people peace of mind by making their position clear, and today we are doing so, by announcing through FAS they will now get 80% of the core pension benefits for life.
“The list of schemes that we are publishing represents the work done so far. I must stress that the door has not been shut on those schemes and their workers who do not appear on this list – we expect to be contacted by more schemes in the coming months.
“We will continue to collect detailed information on the schemes, including crucially on the total number and level of individual losses.”
At present there are at least 380 schemes where members may be eligible for assistance but schemes who may still consider themselves as potentially eligible can contact the Department to provide us with details.
The government will review the operation of FAS after 3 years. We will review the funding for the FAS in the next Spending Review alongside other spending priorities.
A dedicated team of DWP officials, based in York, will administer the scheme and aim to get payments to recipients as soon as possible once the regulations are in place.
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Press Release from Dr Ros Altmann
NAPF CRITICISES INADEQUACY OF FINANCIAL ASSISTANCE SCHEME AND CONFIRMS UNDER 100 A YEAR OF THE 65,000 COULD BE HELPED. URGES GOVERNMENT TO STOP MISLEADING PUBLIC ABOUT PENSION SECURITY.
Ros Altmann says ‘Tens of thousands of people have had their hopes raised by Government claims that it really wants to help them, but this is a cruel deception. These people are being strung along, with delaying tactics, which seem designed to postpone (perhaps until after a General Election) the admission that almost all of them may simply receive no help at all.’
The National Association of Pension Funds (NAPF) has written to Alan Johnson, Secretary of State for Work and Pensions, accusing Ministers of being dishonest with members of winding-up pension schemes, who are still waiting for details of the assistance Government has promised to replace their lost pensions. These members were assured by Government bodies that their money was safe and protected by law, yet they lost most or all of their promised pensions when their employer schemes wound up. After a public and Parliamentary outcry, the DWP announced a £400 million ‘Financial Assistance Scheme’ (FAS) to help these people, and Ministers promised that the level of assistance from this FAS will be substantial, but the NAPF confirms this is not possible. The DWP has suggested a maximum pension under this FAS of £12,000 a year (irrespective of the amount of pension these members have lost), with a minimum pension of £10 per week.
However, NAPF calculations confirm those which I released some weeks ago, that the £400 million could provide the maximum amount to less than 100 people a year! Even if it were only to pay the minimum £10 a week , it could help just 2000 people a year. This is out of a total of well over 65,000 who have lost out. The NAPF urges the Government not to mislead members with this ‘ill-thought and inadequate Assistance Scheme’. As it so rightly says, ‘we have had enough experience of policies which appear to promise something but do not deliver’. The reason these people have lost out in the first place is that the Government’s Minimum Funding Requirement (MFR) did not actually ensure adequate funding levels for pensions, even though Government assurances led members to believe that it would.
The NAPF urges the Government to provide more funds for the FAS and to consider alternative sources of funding, to add to the £400million, such as unclaimed assets of £2.5billion from National Savings, or the £27 billion surplus in the National Insurance fund.
Ros Altmann, who has campaigned to persuade the Government that it must compensate these innocent victims of regulatory failure, says that it is vital the DWP changes its approach to this issue now. Tens of thousands of people have had their hopes raised by the Government claiming it really wants to help them, but it is only pretending to do so. The FAS is a cruel deception, appearing to offer the possibility of meaningful help to people whose lives are in ruins, yet the Government knows that it will not really do so. These people are being strung along, with delaying tactics, which seem designed to postpone (perhaps until after a General Election) the admission that almost all of them will simply receive no help at all, unless a more realistic approach is taken and more funds set aside.
Two things are absolutely vital. Firstly, the winding-up schemes should stop buying annuities, so that their assets can be pooled in a central fund to pay pensions on an ongoing basis, rather than using all the money to buy annuities for those already retired and leaving nothing for others. Secondly, the Government must commit more money, over a long period – something like £75 million a year for 40 years or so – which could provide proper help to replace the pensions these people saved for and were promised. It is impossible, otherwise, to restore credibility to pensions policy, or to Government promises of protection. Members from all political parties have signed an Early Day Motion (EDM40) calling for this to be done and the Parliamentary Ombudsman is currently investigating complaints alleging maladministration of occupational pensions by successive Governments. This inquiry could force the Government to compensate, but the members are suffering dreadfully in the meantime, as they do not know what their future holds.
The NAPF has also urged the Government to be honest with the public about the level of security provided by the Pension Protection Fund (PPF) in future. It points out that the DWP guide to the Pensions Act 2004 makes no mention of the possibility that the Government could decide to reduce the compensation levels paid out by the PPF in future. It is vital that the Government is honest with the public from the outset, to avoid a repeat of the dreadful problems suffered when members were not warned of the risks to their pension security if their scheme wound up.
No more false promises. The people who have suffered in the past, without any warning, must be compensated and all members should be warned of possible risks in the future.
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NAPF Letter to Rt Hon Alan Johnson
5th January 2005
Dear Alan,
PENSION PROTECTION FUND & FINANCIAL ASSISTANCE SCHEME
I am writing to share with you the NAPF’s concerns about the stability and indeed viability of the PPF following the ministerial announcements on 8 November and 3 December. NAPF shares with the Government the objective of restoring confidence and trust in retirement saving which is absolutely crucial to meeting the challenges and opportunities that longer lives bring. We have also welcomed the various Government initiatives such as the Pensions Commission and Employers Task Force, which are intended to address these issues and inform policy. We have been happy to co-operate with both bodies and make available the experience and expertise the NAPF can provide.
We have also lobbied constructively to achieve a workable and fair system of pensions protection. However, the November announcement has introduced a retrospective element into the PPF which we believe was never intended when the Bill was first presented to Parliament. The inclusion of schemes which have not yet begun to wind up, but whose sponsors have become insolvent before April 2005, as eligible schemes threatens to swamp the PPF with claims immediately it begins operations. We suspect that this important and material change in policy is driven by the patent inadequacy of the budget committed thus far to the FAS. Our own estimates suggest that there is sufficient only to provide 2000 indexed annuities each year at the de minimis (£10 per week) level or less than 100 at £12,000 per year.
Should the Turner and Newell scheme be forced to wind up, its estimated buy out deficit of £875m would dwarf the £400m offered so far. Such a claim on the PPF will have to be met by the levy payers, that is, other private sector pension schemes. Additional cost pressures of this order can only exacerbate the significant funding problems faced by such schemes.
There is a simple way of resolving the dilemma which does not involve shifting claims on to the remaining sponsors of defined benefit schemes. Schemes which have started to wind up during 1997 to April 2005 and schemes where the sponsor has had an insolvency event in that time should be covered by the Financial Assistance Scheme. Before any budget is formally determined, the Government needs to ascertain the extent of the losses, decide upon criteria for eligible schemes and individuals and levels of assistance. We accept that assistance cannot be at PPF levels. What we want to avoid is a poorly thought out scheme which will inevitably disappoint. This cannot be good for retirement saving or good for the country.
Ministers have repeatedly expressed the hope that “the industry” will come forward and make contributions in cash and in kind to the scheme. In that context, the pensions industry is a broad term encompassing commercial and non-commercial providers of pensions. It is important to make this distinction. While we have no difficulty with providing expert help and know how (and indeed have done so), we cannot understand how our pension fund members who provide pensions voluntarily as part of the employment package can realistically be expected to finance retrospective assistance. Pension schemes do not constitute “an industry” but cover a diverse group comprising the pension funds of listed and unlisted companies, partnerships, charities, trade unions and public sector organisations. Those who run defined benefit schemes are, in the main, having to deal with underfunding and how best they can meet their own members’ pension expectations. They will moreover have to pay PPF levies from April this year. Money committed to the FAS will mean smaller pension funds and less security for their members. This surely cannot be what the Government wants.
We would suggest that alternative sources of funding be fully explored in addition to taxpayer support. Unclaimed assets have been suggested and in that context, estimated unclaimed national savings of £2.5bn are notable. Of course, any use of unclaimed assets should be subject to a proper and rigorous process to ensure that owners are traced. There is also the surplus in the National Insurance fund of £27bn at 2003/04 which is growing annually.
The consequences of not addressing these issues could be severe. The PPF is an entirely new departure for the UK. No one can be certain how it will develop. The absence of an underpinning guarantee or lender of last resort means that its finances are subject to uncertainty and additional risk. It is no use saying as has been reported in the press that as there will be no cash flow difficulties in the early years, the risks will go away. No pension scheme trustee would be allowed to get away with such unrealistic statements. The PPF must be able to meet its obligations as any other pension fund would be expected to. Otherwise it will either run out of money eventually or benefits will have to be reduced.
On this latter point, it is worth pointing out that the Department’s guide to the Pensions Act 2004 makes no mention of the Secretary of State’s power to reduce compensation levels. We believe that people should be told from the outset that this is a possibility and intend to do so ourselves. Indeed, retrospective claims on the PPF make it more likely that this power may have to be used at some point.
We must avoid the mistakes of the past; the MFR being a notable example of something which does not deliver what it appears to promise. All that does is to bring the retirement system into further disrepute.
To reiterate, we do not think that this is what the Government intends and would urge it to consider these issues. Given their high importance I ought to let you know that we are circulating this letter to the press and other interested parties.
Yours sincerely
Kind regards
Terry Faulkner
Chairman
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Question in the House of Commons 13th December 2004
Mr. Derek Wyatt (Sittingbourne and Sheppey) (Lab): What funding additional to the £400 million already announced will be available to former employees of ASW Sheerness, whose occupational pension scheme is in administration.
Mr. Bill Tynan (Hamilton, South) (Lab): When he expects individuals who lost pension entitlement owing to scheme closures will benefit from the financial assistance scheme.
The Secretary of State for Work and Pensions (Alan Johnson): We are keen that the industry should have the opportunity to offer support to the financial assistance scheme, either by voluntary financial contributions or assistance in kind. In April, we will set up the body to administer the FAS and, following the formal consultation, we will lay regulations before Parliament, and make payments as soon as practicable thereafter.
Mr. Wyatt: I thank the Secretary of State for that answer. Will he clarify one issue? There is to be a review of the scheme after three years. If there is insufficient money in the scheme by then, will the review allow money additional to the £400 million to be paid in?
Alan Johnson: We have announced that £400 million will be the amount of money available over 20 years. The review will take place after three years, when we shall look at how the scheme is operating. We have made no commitment to increase the funding at that stage.
Mr. Tynan: My right hon. Friend will be aware of the continuing enormous concern as to whether the £400 million will be enough. I was contacted this week by one of my constituents, who has been told that he will receive £8,600 from his wound-up scheme. He asked me whether the £400 million will be used to make up the one third that he will not get from his scheme, as he hopes. We know that there is going to be a certain amount of money in the scheme's funds. Will my right hon. Friend tell us whether that £400 million will be enough, or whether there will be a shortfall because of the amount of people needing to receive money?
Alan Johnson: We calculated back in June and we published a statement to say that we believed from the information we had that about 65,000 people needed assistance with schemes that had become insolvent. We made our assessment on that basis. Obviously, we need much more information, but let me make this absolutely clear once again: we have not said that we will be able to match the assistance—the compensation available—in the pension protection fund, nor do we accept any liability for what has happened in the past.
We have said that we should be able to provide some assistance, particularly to those people who have lost the most and are in the worst position in terms of being closer to retirement and who cannot make up that money because of that proximity. So we have made it absolutely clear that we do not in any way pledge to meet every single amount lost from these schemes. We also said in our statement of 2 December that we will have a de minimis £10 below which we will not offer compensation.
Mr. Nigel Waterson (Eastbourne) (Con): Has the Secretary of State seen that the US parent company blames his pension legislation for the most unfortunate breakdown of negotiations over the Turner and Newell pension scheme? Does he accept the view of industry experts that that very collapse could swamp both the FAS and the PPF? Is it not high time that he admitted what everyone else already knows—that the FAS is not remotely adequate for the task it faces?
Alan Johnson: Well, I have heard a few good jokes over the Christmas period, but I have not heard that one before. It is a real cracker—our pension protection fund is responsible for Federal-Mogul's problems with Turner and Newell. I do not accept that at all, although Conservative Members may be more gullible than we are on these Benches.
The situation with Federal-Mogul is very serious. That company is not in insolvency and we expect that it can meet its commitments. Indeed, negotiations are going on now. We think that the amount in the FAS will give proper compensation. I question the assertion made by the hon. Member for Eastbourne (Mr. Waterson) that, somehow, the Opposition could do better than this, because from what I see—£35 billion spending cuts and, I presume, 100,000 staff to go from the Department for Work and Pensions—I doubt whether they would have the money even to administer the FAS, let alone—
Mr. Speaker: Order. I think we will leave that one.
Paul Holmes (Chesterfield) (LD): Those facing financial devastation as a result of losing their occupational pensions through no fault of their own include constituents of mine who work for Chesterfield Cylinders, Dema Glass and Coalite. They soon saw that the £400 million in the FAS was a cruel con trick; it was far too little to provide the compensation needed. Ministers seem to accept this, because they have said that they hope that industry will make up the shortfall. If, as it appears from the Secretary of State's earlier answer, industry has not provided any money to make up the shortfall, are the Government prepared to see these people face a bleak old age, or will they make up the difference?
Alan Johnson: The hon. Member for Northavon (Mr. Webb) has put on a bit of weight since we last saw him—it is pleasant to have the hon. Member for Chesterfield (Paul Holmes) stepping in. I do not accept the hon. Gentleman's point that this is a cruel deception. Most people thought it extraordinary that a Government would provide such assistance in retrospect. Certainly in view of the experience under previous Governments, no matter what we are considering, it is very rare for such a thing to happen and it is very unlikely that it would have happened under the previous Government. We think that the money available is sufficient. We have also said right from the start that we would welcome a financial contribution from the industry. It is fair to say that we have not been swamped with money, but we live in hope.
There is also the money that is still in some of those schemes and the deemed buy-back arrangements that could add extra money to it, but £400 million is a significant contribution for the Government to make, giving some financial assistance with the real problems that the hon. Gentleman raises on behalf of his constituents.
Mr. Geoffrey Robinson (Coventry, North-West) (Lab): I agree with my right hon. Friend in dismissing the hypocritical and nonsensical remarks from the Opposition. In respect of Federal-Mogul, can he confirm if not today, then in the near future, that if indeed the Americans have resiled and remain in the position of repudiating the undertakings they gave to Members of all parties in the House some weeks ago, and that if the pension fund were to go into wind-up—a second order would be necessary to dispose of the assets, which could not come into operation until April next year—that pension fund would then benefit from the PPF arrangements and that, largely, the commitments could be met in that way?
Alan Johnson: I confirm that in the scenario that my hon. Friend paints that would be the situation; it would qualify for the PPF. It is also relevant to point out that there would be a substantial amount of money anyway, to assist us with that situation. Also, the money paid out from the PPF—if it came to that, and let us hope it does not—would not be paid out for several years. So the PPF is adequately placed to meet any commitment, including one from Turner and Newell.
Mr. Patrick McLoughlin (West Derbyshire) (Con): The Secretary of State said a few moments ago that he lived in hope. My constituents live in England, and they want to know what has happened over the past few weeks to the Turner and Newell pension fund, which they thought was sorted out, but which they now find has a great question mark hanging over it? Never mind living in hope—what hope is there for them?
Alan Johnson: The hon. Gentleman and I have clashed on various occasions, but in a good-natured way. I cannot understand a question that seems to place the onus in these negotiations on the Government Front Bench, the Opposition Front Bench or any other person in the House. The responsibility for the situation in relation to Turner and Newell and Federal-Mogul, which is of huge concern to his constituents and those of others around the House, is a matter for the company, its trade unions and its shareholders. It is up to them to find a solution to the problem, and I very much hope that he will join me in urging them to redouble their efforts to do so.
Mr. Frank Field (Birkenhead) (Lab): The Secretary of State keeps talking about the Government having put up £400 million. May I remind him that it is my constituents who are putting up that money, and they think that it is a very generous settlement? But as they and practically everyone else in the House do not believe that the £400 million will be adequate, who in the Government is blocking the suggestion, which is supported on both sides of the House, that the Government use some of the unclaimed assets to meet the bill, so that people have their pensions met in full?
Alan Johnson: I agree with my right hon. Friend that we should always be careful about talking about Government money—of course it is taxpayers' money. I also agree with him completely that his constituents and mine think it a very generous settlement. In terms of what we do with so-called orphan funds, we want to reunite those unclaimed assets with their rightful owners. It is a mistake to base policy on a financial assistance scheme of taking money when we do not know how much is there—I have heard estimates varying from £170,000 to billions of pounds—or on seeking to take money from accounts over which we have no control and which are owned by other people. The £400 million settlement, which is generous, as he recognises, gives far more confidence to the people affected than the suggestion that we can somehow match that from orphan funds.
Mr. David Watts (St. Helens, North) (Lab): Has my right hon. Friend had the chance to study my early-day motion 359, which calls on the pension industry to make a contribution? Does he agree that there is a moral obligation on the pension industry to make a substantial contribution to this fund?
Alan Johnson: I have studied my hon. Friend's early-day motion in great depth—I did very little else over the weekend—and know it word for word. It is an important early-day motion, as it matches what we would like, which is a contribution from the industry. We live in hope, as the hon. Member for West Derbyshire (Mr. McLoughlin) reminded me, and now that the FAS is on the statute book, and as we get closer to finalisation, I still hope that we will see contributions coming from that quarter.
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Statement from the Parliamentary Ombudsman
Following complaints from over 100 people the Parliamentary Ombudsman has announced that she will examine government’s action in connection with occupational pensions. She has chosen four representative cases to study, although the results of her investigation will apply to everyone. The investigations are expected to take about a year.
The statement below, which has been sent to everyone who submitted a complaint, details the scope of her investigations.
STATEMENT OF REPRESENTATIVE COMPLAINTS TO BE INVESTIGATED
The representative complainants allege maladministration on the part of the Treasury, the Inland Revenue, the Department of Work and Pensions (DWP) and the Occupational Pensions Regulatory Authority (OPRA) in relation to their responsibilities for final salary occupational pension schemes. They make the following specific complaints.
1. DWP and OPRA did not take proper care when informing the trustees and members of Defined Benefit (DB) occupational salary schemes about the degree of security of the pensions to be paid from the employers' plans. In particular, they failed to warn of the risks to non-pensioner members in the event that a DB scheme was wound up. Instead, publications appeared to provide unqualified reassurance. For example:
a) The OPRA guidance to Trustees published in 1998 stated that 'The MFR (Minimum Funding Requirement) refers to the amount of funds that should be in the scheme at anyone time in order to meet the scheme's liabilities if it were to be discontinued.’ This was incorrect, since the MFR was never designed to meet all liabilities of DB schemes on discontinuance, but trustees of such schemes would have been unaware that the statement was incorrect, and would have relied on it in their communication with members. Although the booklet was later amended, the amendments were not brought to the attention of all trustees.
b) Occupational Pensions guides published by DWP in May 2002 and October 2003 contained reassurances that occupational pensions were protected by a number of laws, and failed to describe the risks to pensions that might arise if a scheme were to be wound up.
As a consequence, the Government led members of DB schemes to believe that their pensions were safe in the event that their scheme was wound up when this was not necessarily the case.
2. Neither the Treasury nor DWP took action to draw limitations of the MFR to the attention of members of DB schemes. A report from the Faculty and Institute of Actuaries entitled 'Review of the Minimum Funding Requirement' submitted to the Treasury in May 2000 identified 'a large and worrying gap between the level of security which the MFR test actually delivers and the public's perception of what it would deliver'.
The report later stated: 'It is therefore a key conclusion of this review that there should be full and clear disclosure to members of the objectives and limitations of the MFR test and the consequences if their scheme should be wound up. '
This did not happen. Instead, guides aimed at scheme members continued to provide reassurances without mention of the risks (see paragraph 1 b above ).
3. The DWP approved relaxations in the actuarial calculations underpinning MFR on 15 June 1998 and 2 March 2002 without having due regard to the effect this would have on all classes of DB scheme members should a scheme be wound up. Members of DB schemes were not informed that the weakening of the MFR would have the effect that the security of their benefits would be reduced if their scheme were to be wound up.
4. Delays on the part of the National Insurance Contributions Office of the Inland Revenue in reconciling the Guaranteed Minimum Pension entitlements in respect of members of wound-up DB schemes have caused these schemes to be in winding-up for much longer than necessary. This has caused financial loss to members of those schemes arising from the additional administrative costs to the scheme and from a reduction in annuity rates during the period of delay.
Remedy sought
The complainants consider that the maladministration they allege has led to injustice, in that, for members of such schemes, they were misled into remaining in their employer's DB scheme and lost the opportunity to move their pension fund elsewhere. They have received a substantially smaller pension than they had been led to expect, and the compensation scheme established by the Government is insufficient to cover their losses. They seek full financial redress for their loss. They also seek compensation for the distress caused to them and to their families.
Trustees of the schemes consider that they have been prevented from fulfilling their obligations to scheme members and that their professional reputation has suffered as a result. They seek a full explanation and redress for the inconvenience caused to them.
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Press Release from Dr Ros Altmann:
PARLIAMENTARY OMBUDSMAN TO INVESTIGATE COMPENSATION FOR PENSION WIND-UP LOSSES. COULD COST GOVERNMENT £5-10bn
"It is wonderful news for the victims of this dreadful injustice that they may, at last, receive compensation for their suffering. They trusted the Government, trusted our pension system, but have been left in misery."
Ann Abraham, the Parliamentary Ombudsman is launching a major investigation into pension losses suffered by members of final salary company schemes which are winding up. She has received complaints from MPs, scheme trustees and members, who allege that maladministration by Treasury, Department of Work and Pensions (DWP), OPRA and NICO (part of Inland Revenue) has led thousands of members of schemes in wind up to lose most or all their expected pension and caused significant stress and distress to them and their families.
Now she has decided that she has received sufficient evidence of maladministration, which may have caused the injustices complained about, to launch an official investigation, and that the trustees and members cannot reasonably be expected to have alternative remedies in the Courts.
It is wonderful news for the victims of this dreadful injustice that they may, at last, receive compensation for their suffering. They trusted the Government, trusted our pension system, but have been left in misery because of several major failings, including:-
1) Treasury and DWP ignored Actuaries’ advice to warn members that being fully funded on the official Minimum Funding Requirement (MFR) did not offer security on wind-up.
2) DWP and OPRA were careless with wording of official booklets sent to trustees, which wrongly told them the MFR guaranteed enough money in the scheme to meet liabilities on wind-up.
3) DWP relaxed MFR twice, without realising the effect on pension security of different classes of member, especially those close to retirement, who could lose their entire pension with no warning.
4) NICO delays in agreeing GMP entitlements have led to extra costs and lower pensions, as bulk annuity rates have worsened significantly over time.
The investigation, expected to take several months, could see £5-10bn compensation for the victims of this dreadful injustice.
The Government has so far refused to accept any responsibility for this injustice and offered £400m over 20 years in a Financial Assistance Scheme, which, if paid as £20m a year could restore pensions to around 100 people! This has merely raised false hope, and cannot address the scale of the problem.
Details:
There is fresh hope today of Government compensation for the 65,000 or more members of company pension schemes, who have lost their pensions. The Parliamentary Ombudsman is launching an investigation into the Government’s handling of final salary occupational pensions in the UK. She will consider charges of maladministration against several Government departments, after receiving complaints from many MPs, on behalf of constituents who have lost much or all of their occupational pensions when their company schemes were wound up. Her investigation will look at the policy decisions taken by Government departments, specifically H.M. Treasury, Department for Work and Pensions (DWP), Occupational Pensions Regulatory Authority (OPRA), and the National Insurance Contributions Office (NICO), which is part of the Inland Revenue.
The four specific lines of inquiry will be as follows:
1) The Treasury and DWP failed to act on warnings from the Institute of Actuaries, in 2000, to tell members that the Minimum Funding Requirement (MFR) standard, set by the Government for occupational schemes, did not fully protect their accrued pensions. Official booklets still reassured members that their pensions were safe, without warning of any risks, until 2003.
2) The DWP and OPRA did not take enough care when informing trustees of final salary schemes about the protection offered to members by the MFR. Official booklets wrongly told trustees that the MFR fully protected accrued pensions on wind-up, which is incorrect, but trustees did not know this and unwittingly misled members into believing their pensions were secure.
3) DWP approved relaxation of the MFR in 1998 and 2002, without due regard to the effect this would have on the security of members’ benefits in the event of wind-up. In particular, those close to retirement were unaware they could lose their entire pension and were still reassured by official material that their pensions were safe.
4) NICO has caused long delays to trustees trying to reconcile entitlements to Guaranteed Minimum Pensions (GMPs) for members of schemes in wind up. This delay has led to substantial losses of pensions for members of winding up schemes, because administrative costs have been incurred and annuity rates have worsened dramatically during the period of delay.
The Parliamentary Ombudsman has obtained legal advice which clears the way for her investigation to run alongside the case being brought by the Community Union. The union action is challenging the actual legislation passed by Parliament, claiming UK laws did not comply with the 1980 EU Insolvency Directive. The Parliamentary Ombudsman inquiry, however, cannot consider whether the legislation itself was appropriate, but is looking at whether the administration of the laws passed by Parliament was carried out adequately and the way in which policy decisions were taken. In particular, she has been asked by MPs to consider whether Treasury and DWP Ministers ignored relevant evidence when taking policy decisions related to occupational pensions and the extent to which information provided by official bodies to trustees and members of occupational schemes was inaccurate and misleading and therefore misdirected those relying on this information. MPs have asked her to consider whether their constituents’ pension losses are the result of such careless policy decisions, which, had they been implemented properly, could have avoided the injustices that members of UK final salary schemes are suffering.
The Parliamentary Ombudsman has decided that she has received sufficient evidence of maladministration, which may have caused the injustices complained about, to launch an official investigation, and that the trustees and members cannot reasonably be expected to have alternative remedies in the Courts.
This investigation is expected to require Government departments to release details of policy decisions and the rationale behind them. The Parliamentary Ombudsman has much wider powers than a Court of law to demand information and can interview Ministers directly. This will be a wide-ranging investigation and it is hoped that a recommendation will be made in a matter of months. If she finds that maladministration has occurred and that this maladministration has led to an injustice, she will recommend to Parliament that this injustice must be remedied and those who have suffered from it should be compensated. It is almost unheard of for Parliament not to follow recommendations made by the Parliamentary Ombudsman. Only 2 cases in the past 37 years have been turned down and none has ever been refused in circumstances such as these.
There have been many instances where the Parliamentary Ombudsman has forced Governments to compensate the victims of injustice. For example, the Channel Tunnel rail link, Continuing Care for the Elderly and the SERPS (State Earnings Related Pension Scheme) compensation, all of which cost the Government billions of pounds. If the investigation finds in their favour, compensation could run to billions of pounds – it is likely that it could cost £5 - £10billion.
The victims here are claiming full restoration of the pensions they were promised, and which they were told by the Government were safe and protected by law. They are also asking for her to award them compensation for the stress and distress they are suffering as a result of losing the pension to which they have contributed in good faith, relying on Government assurances. The devastating effect of this situation on the lives of these individuals and on their families is difficult to describe. Their health has suffered, they have been forced in many cases to sell their homes because they cannot afford to live in them and were relying on their pension to provide an income for them to live on.
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High Court announcement “great news” says ASW union
Reacting to the announcement by Mr Justice Evans – Lomb, the Judge in charge of today’s hearing on the failure of the UK Government to properly implement European Law which would have protected the pensions 1,000 former steelworkers, Michael Leahy, General Secretary of Community (formerly ISTC and KFAT), the union representing the vast majority of ex-employees of the former ASW steel company in Cardiff and Sheerness, said:
“Today’s’ announcement by the Judge that he believes that the case we are bringing on behalf of our members formerly employed by ASW should be heard by the European Court of Justice and that it should be heard now is great news.
“It will be welcomed by our members in Cardiff and Sheerness and also the thousands of other workers who may benefit should our case be successful.”
Community is taking the action because of successive UK Governments’ failure to implement European law to protect workers pensions when their employers are declared insolvent. The law, Article 8 of the European Insolvency Directive, should have been implemented in member states by 1983, but the Conservative Government failed to do so properly, the union believes.
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Case for the Pensions Ombudsman
The Group believe that we have a strong case for compensation because, in simple terms, "nobody warned us of the risk". The following document, prepared by Dr Ros Altmann, outlines the background to this claim.
Please contact your local MP, present this evidence and tell them you wish the Parliamentary Ombudsman to investigate our case. If you would like a copy of this as a Word document please contact us. A complaints form, which should accompany your document, can be downloaded from the Omdudsman's web-site. (although the site does seem to be off line at frequent intervals). Also see the letter from Steve Webb MP which is two sections further down this page.
Successive Governments have led members of private sector final salary occupational pension schemes to believe that their pension rights are safe and protected by the law. In particular, after the Maxwell scandal in 1992, the 1995 Pensions Act was introduced, with the expressed aim of improving security for employer pension schemes and ensuring adequate funding levels, so that members’ pension rights were protected and employers could not raid pension fund assets in future, as Maxwell had done. A compensation scheme was established, to pay pensions to those who lost out if their employer behaved fraudulently. A Regulator was also set up (OPRA) and trustee boards were required to have member representation, so that the workings of pension scheme Boards were better regulated, with more direct input from members.
Members were told by the Government and by all industry professionals, that the 1995 Act protected their pension rights. In practice, however, this has turned out to be untrue. Thousands of members of employer schemes, who were relying totally on their employer’s pension to fund their retirement, have suffered the loss of most or all of their pension, when their scheme was wound up – either when their employer became insolvent or alternatively when their employer simply decided not to support the scheme any longer. In both circumstances, members have lost most (and in some cases all) of their so-called ‘guaranteed’ pension.
The case we are asking the Parliamentary Ombudsman to investigate is that the Government and its various departments – in particular the Treasury and the DWP (formerly the DSS) - but also the FSA and OPRA, failed in their duty to ensure that members were protected in the way the Government said they were and failed to warn them of any risks to their contributions, as a result of scheme wind-up. If the law did not protect them, the Government should not have told members that it did.
This is not a complaint about the law itself. It is a complaint about Government actions which amount to maladministration, actions which damaged the interests of scheme members and inaction, in failing to warn members of the risks they were taking when contributing to their employer scheme. Government promoted and encouraged them to join their employer’s scheme, prevented them from being in any other pension and lulled them into a false sense of security about the safety of their contributions. There are many pieces of evidence in this case, which are in my possession and from which I will quote directly. The Government has agreed to set up a Trust Fund of £400 million to offer assistance to some of those who have lost out, but this fund is not sufficient to fully compensate members for the losses they have suffered and it is also designed to exclude several groups of members, which is unfair and unacceptable. Therefore, we are claiming that the Government has offered insufficient remedy to compensate for the damage done by its actions and its inaction.
If a financial services company ‘mis-sold’ a product to a member of the public, it would be forced to compensate for any losses suffered. For example, the FSA is pursuing companies who described products as ‘low-risk’ when investors subsequently lost money and asking them to pay compensation. The actions of the Government amount to mis-selling of employer pensions in an even worse manner. The employers’ schemes were not described as ‘low risk’, they were described as ‘no risk’! Yet members lost all their money. This surely demands full Government compensation for the losses suffered. The Government seems to have knowingly misled the public into believing schemes were safe and failed to put in any risk warnings, and failed to require anyone else to give any risk warnings, as to what the true position was regarding safety of contributions.
DETAILS
Section 1: Introduction: Government introduces 1995 Pension Act, claiming to protect pension rights.
The 1995 Pensions Act purported to protect members’ pension rights and ensure adequate funding levels. In practice, the Act only offered protection to those already drawing a pension, which meant that the contributions of those not yet receiving a scheme pension could be used to buy annuities for other people, and leave the contributors with nothing. The ‘interim’ priority order required scheme assets to be used first to buy index linked annuities for those already receiving a pension and the pensions of those not yet retired, even if they were a few days away from retirement and had contributed to the scheme for decades, could disappear. The level of protection offered by the Minimum Funding Requirement (MFR) was not adequate to ensure accrued pension rights would be fully met. However, members and trustees were led to believe that the MFR would deliver adequate funding for the scheme.
Section 2: OPRA gives trustees incorrect information.
Evidence:
OPRA Guide to Trustees, (page 28) sent out in 1998 states:
‘The MFR refers to the minimum amount of funds that should be in the scheme at any one time in order to meet the schemes liabilities if it were to be discontinued’.
Complaint:
This statement is untrue. The MFR was never designed to ensure that the assets of the scheme would be sufficient to meet liabilities on discontinuance. It was only designed to be adequate for meeting the liabilities of pensioners and to have a ‘50/50’ chance of meeting the accrued pension liabilities of those not yet retired. Thus, the Regulator sent out a booklet to scheme trustees, which the trustees would have been reasonably expected to rely upon as being correct, and which led the trustees to believe 100% MFR funding meant adequate funds to pay the pensions. The trustees would, therefore, have been likely to relay this incorrect information to members.
Section 3: Treasury and Department for Work and Pensions (DWP) ignore Actuaries advice and fail to warn members
Evidence:
In 1999, the Treasury asked the Faculty and Institute of Actuaries to prepare a report which investigated the workings of the MFR. This report highlighted that scheme members and trustees generally believed the MFR offered them full protection, when this was not the case. The Actuaries’ Report strongly recommended to the Government that it should, at the very least, tell all classes of members what would happen to their pensions if the scheme wound up. The Treasury and Department of Social Security (DSS, now renamed DWP) consulted on the Actuaries’ report and recommendations in September 2000. The official Consultation Document highlighted the strong advice from the actuarial profession about members’ mistaken beliefs regarding the safety of their pensions.
In fact, the consultation document states that ‘The Government wants to help people understand their pension rights and appreciate the value of saving for pensions’. It also states that, for defined benefit schemes, ‘there is no intrinsic guarantee that the accumulated funds will be able to deliver members’ pension rights.’ The Document emphasises that one of the ‘key conclusions’ of the Actuarial profession’s report, is the strong recommendation ‘that the new MFR test should be coupled with much clearer disclosure of the real position regarding the security of members’ benefits in the event of the scheme winding up, for each class of member’.
If it was really the case that the Government wanted to help people understand their pension rights, and if there was no guarantee that these rights would be delivered by their scheme, one would expect that the Government would be anxious to ensure that scheme members were told the truth about the security of their pensions. Indeed, the Government’s consultation stresses that ‘the concerns identified by the Actuaries all deserve informed and thorough discussion among the various interest groups concerned’.
Sadly, however, the Government failed to discuss this with the interest group most perniciously affected – the scheme members themselves. Furthermore, in its response to the consultation, in March 2001, the Treasury and DSS ignored the Actuaries’ advice and decided not to warn members.
Complaint:
Having been clearly and strongly advised that members thought their money was safe, when it wasn’t and having publicly stated that it was important that members should be warned that their pension rights were not secure on winding up the scheme, the Treasury and DWP failed to warn the members themselves and failed to require anyone else to warn them. This was directly against the Actuaries’ advice and also directly contradicted the aims of the Consultation, which were ‘to help people understand their pension rights’. This amounts to a failure of administration and resulted in losses to many members.
Section 4: Treasury (FSA) continues to tell members their pension rights are ‘guaranteed’, and fails to warn of any risks:
Even after the 2000 Consultation exercise, the Treasury, and its representative the Regulator, the Financial Services Authority (FSA) continued to tell members of final salary schemes that their pensions were ‘guaranteed’, ‘safe’ and ‘protected’ by the law. The Government had publicly consulted on the fact that this was not the case, yet still told the public that these pensions were guaranteed and safe.
Evidence: (Examples – more evidence in full documentation)
FSA guide to the risks of opting out of your employer’s pension scheme (quote from page 5):
‘Some types of employers’ schemes (the ones called ‘final salary’ or ‘defined benefit’ schemes) give you a guaranteed pension. The amount of pension you get from a personal pension is unpredictable’.
FSA guide to the risks of opting out of your employer’s pension scheme (quote from page 9):
‘Others, called ‘defined benefit’ schemes (for example, ‘final salary schemes) are different and offer guaranteed benefits.’
FSA guide to the risks of pension transfers (quote from page 7)
‘Defined benefit or final salary scheme: You are guaranteed a certain level of pension when you retire, as well as other benefits’
FSA guide to the risks of pension transfers (quote from page 9)
‘If you transfer from a final salary scheme to a money purchase scheme run by a new employer or to a personal pension, you give up the promise of a guaranteed pension. What you get instead is a pension whose value depends on how well the invested money grows.’
There is not one mention of the risk that the employer may choose to wind up the scheme or that insolvency could cause pension rights to be lost, which meant that the pension was not ‘guaranteed’ at all.
Complaint:
The Treasury, in effect, seems to have knowingly misled the public. It failed to act with due care and it put out material which it knew to be untrue. The effect of this situation is that members were robbed of the opportunity to protect their pensi0ns and were lulled into a false sense of security that their retirement income was safe. Many were in their 50’s or 60’s, and relying totally on their employer pension to support them in retirement. They have told me, if only they had known their money was not safe, they would have transferred out.
Section 5: DWP continued to mislead members too and failed to warn of the risks
Evidence:
Booklet produced by ‘the Pension Service’ (part of the DWP) called: Occupational Pensions Your guide May 2002 (quote from page 15)
'How do I know my money is safe? You are protected by a number of laws…OPRA can act quickly to protect your interests’.
Once again, there is not one word about the risk that your employer’s scheme could be wound up and you could lose your whole, or most of, your pension.
Evidence:
Booklet produced by the Pension Service (part of the DWP) called:
Occupational Pensions Your guide October 2003 (quote from page 15)
‘Is my money protected?’ the asset of the pension scheme belong to the scheme, not to your employer. As a scheme member, you are protected by a number of laws designed to make sure schemes are run properly and to make sure funds are used properly’.
Evidence:
Pensions Green Paper ‘Simplicity, Security and Choice’ December 2002, issued by DWP. Technical annex page 55
‘Accrued rights are clearly protected under pensions legislation and this will remain the case’.
Complaint:
The DWP knew that members believed they were safe, chose to ignore advice that they should be warned what the risks were and continued to tell them their money was protected by the law and that their accrued rights were safe. The DWP knew this was not true, also knew that scheme wind-ups could result in loss of most or all of the members’ pension, yet chose not to tell the members at all. The Government thus deprived members of the chance to protect their money and lulled them into a false sense of security about the safety of their pensions and their contributions.
Section 6: DWP continued to promote occupational scheme membership, without warning of the risks.
Evidence:
Letter from Malcolm Wicks, Minister of State for Work and Pensions, sent August 2003:
‘The Government will continue to promote occupational pensions…the Government has promoted these schemes and encouraged and supported employers and individuals to make private provision for retirement’
Complaint:
The Government cannot simply say that members voluntarily decided to join their employers’ schemes. It is, therefore, not acceptable for the Government to suggest it has no responsibility here. That is because, firstly, some members were compelled to join, but more importantly the Government continued to promote and encourage joining of the schemes, did not allow members to belong to any other scheme if they were in their employer’s scheme, and failed to warn of the risks involved in deciding to contribute to, or stay in, the scheme of an employer who may fail, or who may wind up the scheme. By claiming that the pension was guaranteed, the DWP prevented the members from looking after their own interests. This is maladministration and misleading the public.
Section 7: Government failed to put in any warnings to alert members to the risks that their ‘guaranteed’ pensions may not be ‘guaranteed’ after all.
Evidence:
Letter from OPRA to scheme member, June 2003
‘At present the legislation makes no provision which means trustees, or sponsoring employers of schemes have to provide you with details of the possible risk involved. There are rules regarding the disclosure of information, however, answering questions about the risks involved or advising on whether to keep money in a particular fund is not covered by law.’
Complaint:
The Government failed to put in any safeguards, either before or after 2000, to ensure that members would be told what the risks of investing their money in their employers’ schemes were. If a financial services company operated in this manner, the Government would force it to pay full compensation for any losses suffered. Surely, the same rules should apply to the Government and FSA. The Treasury and DWP have ‘mis-sold’ employer pension schemes to the members, by failing to warn of the risks. These schemes were not promoted as ‘low risk’, they were promoted by the Government as ‘no risk’!
Section 8: Treasury claims to be concerned that final salary pensions were described as ‘guaranteed’.
Evidence:
Letter from the Treasury to a scheme member, March 2004
‘I was somewhat concerned at your comments that your pension entitlement was promoted to you as ‘guaranteed’.’
Complaint:
The Treasury itself knew members thought their pensions were guaranteed and chose not to tell them that they might not be. The Treasury’s agent – the FSA- sent out information to members stating that final salary pensions were indeed ‘guaranteed’! This evidence shows a catalogue of errors, or knowingly misleading the pubic, by various Government departments. The members had no chance to protect their money and Government has not offered to fully make up for their losses. If the Treasury is concerned that the member’s pension entitlement was promoted to him as ‘guaranteed’ then it should be equally concerned, surely, that the Treasury itself (in the form of the FSA, which was acting on behalf of the Treasury) called these schemes ‘guaranteed’!
Section 9: Personal pensions ‘mis-selling’ led to members being told to re-join schemes which then failed.
Evidence:
Some members of employer schemes transferred out of the scheme after being sold personal pensions in the 1980’s and 1990’s. In some cases, these members were told they had been ‘mis-sold’ the personal pensions and they received compensation. The papers were full of stories that people should stay in their employer’s final salary scheme, since it was the best type of scheme and offered ‘guaranteed’ benefits. Some members received compensation for the apparent ‘mis-selling’ and were told by the Government to re-join their employer’s scheme. Having done this, the employer subsequently failed and these members ended up losing their entire pension.
Complaint
The members, therefore, would have been better off not transferring back in and may not have been ‘mis-sold’ at all! Such advice and the whole atmosphere surrounding final salary schemes, has been a further contributory factor in lulling members into a false sense of security about their pensions. The Government created a myth that people should not transfer out into a personal pension and failed to warn that there might be circumstances, if the employer were not committed to the scheme, or might become insolvent, in which the members should definitely have considered transferring out. But no-one told them.
* * * * * * * * * * * * * * * * * * * * *
Final Salary Scheme wind-ups with solvent company employers.
By Richard Nicholls
The announcement by the Government on May 19th 2004 of a support package of £400 million to help the 60,000 workers who have paid for a pension, but are being told that there are insufficient funds to pay them, is welcome news. It acknowledges the fact that successive Governments have introduced flawed legislation to improve the security of occupational pension funds, given misleading information to savers and devalued the protection available.
Malcom Wicks and his colleagues at the DWP consistently told us that they did not want to raise false hopes, and now take the glory for supposedly thinking up the support package. Mr Wicks quoted on Money Box on Radio 4 on 15th May, said ‘They’ve effectively had their money stolen from them and through no fault of their own, and we think it is right that the public should support them and that’s what we’re going to do.’
So you can imagine the horror of finding out that in Clause 34 of the new Pensions Bill, provision is being made to produce a support fund of £400m over 20 years, but only for certain people. If your company is still solvent, your are to be excluded! Why? No one from the DWP has yet to answer this question. If you’ve got a broken pension promise, it doesn’t make any difference how or why the scheme is winding up.
Hints have been made that this group of people should try and get the deficiency from their employer! How? Legislation allowed the employer to stop paying into a scheme. This has been outlawed from 11th June 2003, but if your scheme went into wind up before that, you have no protection, and will not be included in Clause 34. This is immoral, cynical, penny pinching and unjust.
It should not be forgotten that most of the affected companies are only still solvent because the scheme trustees agreed to compromise on the deficiency debt, to allow the company to survive in business, so protecting jobs.
Can it be right that they should, in hindsight, have served the debt on the company, forced it into liquidation, just to be eligible for any government support?
The worker who has paid in all his working life to a scheme where the employer is still solvent is experiencing exactly the same pain as the worker who lost his pension through his company’s insolvency. He has consistently been told by government that his money is safe, guaranteed, secure and untouchable. What the government failed to mention was the flawed 1997 Pensions Act which, with good intent, tried to provide the security. It actually made matters worse, and subsequently allowed a devaluation of the Minimum Funding Requirement, which gave people an even bigger sense of security.
Protection is to be given to members of schemes that go into wind up with insolvent employers, either through the new PPF, or pre-PPF through the support package, and protection is given to solvent company scheme wind ups after 11th June 2003. It is only the members of solvent company pre 11th June 2003 wind ups who are currently left out in the cold with clause 34.
The number of schemes involved is relatively small, numbering less than 15 schemes and involving less than 4,000 people. This is the estimate from all schemes known about. Why penalise such a small number? Why should they be left destitute? They have done what the government asked, saved all their lives, only to be dismissed at the eleventh hour. They should, and must, be included, for the same reasons as pensioners of insolvent schemes have been thrown a lifeline. Why hurt this group any longer?
We see headlines proclaiming that clause 34 has ‘saved the workers from a dreadful retirement’. We saw the back slapping around the House when clause 34 was passed. If the government actually means what it says, why has it given us false hope and then dashed it? Why has it chosen to punish one section only?
The Government must, during it’s considerations over the workings of clause 34, accept that the injustice is universal, not selective, and include the deferred pensioners of solvent company schemes.
The companies known to the group are:
Dalgety, Daybrook Laundry, Felix Schoeller/Glorymill, Globeground (previously part of Lufthansa), FH Burgess, Lionheart, Lister Petter, Moore Products, Pacesetter Medical Products, Parsons Group, Rael Brook, Shipham, SIFAM and Technograv.
If you know of any other solvent companies which have closed their pension scheme, or can provide any further information please contact Richard Nicholl
* * * * * * * * * * * * * * * * *
Letter to Parliamentary Ombudsman
Steve Webb MP, Liberal Democrat spokesman for pensions, has sent the following letter to the Parliamentary Ombudsman. It is probable that several of us will start proceedings via the Ombudsman saying that all the government agencies misled us over the security of our pensions.
Dear Madam,
Re: Loss suffered by members of occupational pension schemes
I am writing to ask whether you would, in principle, be willing to investigate the extent to which maladministration by successive government departments and public bodies has contributed to the loss by many thousands of employees of some or all of their occupational pension rights. In this letter I will sketch out simply the outline of the case, but would be more than happy to supply further detail, provide case studies etc. I would also be happy to meet you or your staff at any time to discuss this matter. I anticipate that a number of other Members of Parliament will be making references to you over the coming months on the same issue.
The background to the issue is that defined benefit occupational pension schemes can be wound up for a variety of reasons. A common reason is when the sponsoring employer becomes insolvent . Where the pension fund has insufficient assets to meet its liabilities, the 1995 Pensions Act dictates that the rights of retired scheme members take priority, both in terms of their pensions in payment and future indexation of those pensions. Because these rights can be expensive to cover, the balance of the already limited fund can be far too small to meet the accrued pension rights of non-retired members who can lose some or all of their company pensions. It has been estimated that around 60,000 workers may have lost out in this way.
Clearly, governments cannot be held directly responsible for the insolvency of sponsoring employers nor for the fall in value of pension funds owing to stock market fluctuations. However, there is clear evidence that members of occupational pension schemes were not given accurate information or clear warnings about the risks associated with their membership of their company pension scheme. Indeed, some literature from government departments and other public bodies gave a quite misleading impression that company pensions were “guaranteed”, when this was far from true. As a result, workers were unable to make informed choices about the riskiness of different forms of pension provision and were given a false sense of security about their company scheme. Even though some workers could see that their employer was going through a hard time, they were confident that their pension was safe and made no alternative provision. Had they made alternative provision – for example, taking out a personal pension instead of their company pension – their pensions would now be safe.
I would be happy to provide you with a comprehensive briefing of the evidence for these claims, but the following are some examples:
• in 2000, the Institute of Actuaries advised the Treasury that members should be warned of the risks to their pension from employer insolvency; the Treasury decided not to warn people, as a result of which the FSA continued to tell workers that their employer pension was “guaranteed” in two separate booklets;
• the FSA ‘guide to pensions’ said, (under the heading, “reasons for joining an occupational pension scheme if you can”), “in a final salary scheme you know broadly how much pension you’ll get. This makes it easier to plan for retirement”.
• in December 2002, p55 of the technical paper accompanying the Pensions Green Paper said; “Accrued rights..are clearly protected under pensions legislation and this will remain the case”
• in 2003, the DWP produced “Occupational pensions: Your Guide” which said: “Q. How do I know my money is safe? A. You are protected by a number of laws….OPRA can act quickly to protect your interests”;
• OPRA (the Occupational Pensions Regulatory Authority) produced a guide for Trustees (subsequently withdrawn) which said: “The 1995 Pensions Act was intended to increase the security of members’ benefits….The Minimum Funding Requirement refers to the minimum amount of funds that should be in the scheme at any one time in order to meet the scheme’s liabilities if it were to be discontinued” [this was not factually accurate, but was the explanation issued to trustees]
• Government literature regularly promoted membership of occupational pension schemes without mentioning the risks associated;
In short, the case is that the risks associated with membership of an occupational scheme were well known by governments and public bodies but were not made known to members. Many of these members had an inaccurate perception of the risk associated with being a member of their company pension scheme and may therefore have made the wrong pension choices with the result that they have now lost some or all of their pension rights.
Since this issue came to prominence, the Government has launched a “Financial Assistance Scheme” to aid some of these workers as part of the current Pensions Bill. However, the scheme will provide only limited assistance (less than will be provided under the planned Pension Protection Fund) and is likely to exclude several groups of workers who have lost out, including those whose schemes wound up before 1997, and those whose employers are still solvent. The government has been explicit that this is not a compensation package and therefore does not deal with the problem.
I would be most grateful for an indication as to whether, in principle, you would be willing to investigate this issue.
* * * * * * * * * * * * * * * *
Minutes of Emergency Meeting of The Pension Action Notch Group 22nd May 2004
Held at Mary Sumner House, Tufton Street, London.
Attending
ASW Sheerness: John & Sally Hayter, Andrew Parr, Jean Wade
ASW Cardiff: John Benson
Dexion-Hemel Hempstead: Peter & Jacquie Humphrey, David & Jenny Allen
Dexion-Gainsborough: Keith & Patricia Sargent
Burgess: Richard Nicholl
Kalamazoo: Peter Wheeler
Samuel Jones: Alan Marnes
Apologies:
Dr Ros Altmann, Alison Parr
Review of recent Government announcement and House of Commons Debate regarding the Pensions Bill
It was agreed that information coming out of the debate was very vague with a lot of variables that could and should be included when consultation continued.
It was also agreed that representatives from the Pension Action Group must be included in these consultations.
It was agreed that each group should ask its members to write to Mr. Tony Blair, Mr Andrew Smith and Mr Malcolm Wicks asking that members of the Pensions Action Groups be included in consultations.
It was agreed that specific questions relating to the possible outcome of these talks be raised in readiness for such inclusion.
It was agreed that a Press Statement be prepared containing our thoughts on the announcement of the ‘Assistance Fund’, but also our need to be involved during consultation stage.
It was agreed that our campaign would continue until full benefits were restored and as a reminder the next demo was planned for June 19th 2004 which is being organised by the TUC.
It was agreed that the next ‘Notch Meeting’ would still take place at Groby Village Hall near Leicester on 13th June 2004. Thanks to Paul Gill for organising this. Details to be posted on the website and by e-mail. All welcome.
John Benson told us that a meeting had been held in the Cardiff area with Ian McCartney Chairman Labour Party, Kevin Brennen and Glennis Kinnoch where discussion took place regarding pension issue. Awaiting details.
Fiona Glover, presenter for BBC Radio 4, joined the end of the meeting to talk to various people about how we were managing our demonstrations and in particular the ‘Stripped of our Pensions’ turn out in Bournemouth last year. This we believe was in contrast to the ‘paint powder’ demonstration during Prime Minister Question Time on Wednesday last. Fiona was also interested in talking to the ladies that were to be later demonstrating as ‘Suffragettes’. These interviews were to be broadcast on Sunday 23rd during ‘Broadcasting House’
* * * * * * * * * * * * * * * * * * *
PRESS RELEASE
23rd May 2004
The Pensions Action Group welcomes the establishment by the Government of a £400million fund to ‘aid’ people who have lost most, in some cases all, of their occupational pension through scheme wind-ups.
We are also encouraged that Pensions Minister, Malcolm Wicks, publicly acknowledged on BBC Radio 4 Money Box on Saturday 15th May that our pensions have been stolen, through no fault of our own.
We do, however, have many concerns and questions regarding the structure and implementation of the fund.
As principal stakeholders, we therefore look forward to working with the Government throughout the forthcoming consultation periods.
The aims of The Pensions Action Group remain unchanged:
Every affected person is to have full restoration of their pension entitlements, regardless of their company, date of joining the scheme, the reason for the wind-up, the date of the wind-up, length of service or age.
THE PENSIONS ACTION GROUP
The Pensions Action Group is composed of both union & non-union represented employees who have lost most, in some cases all, of their occupational pension through wind-up of their company schemes. Wind-ups can occur when an employer becomes insolvent or when a solvent employer, quite legally, ends the scheme.
These people were in many cases compelled to join their scheme as part of their conditions of employment, and were never warned of any risk by governments, the FSA, OPRA, OPAS, the NAPF or their employers. They were encouraged to join and assured that their pensions were safe, guaranteed and protected by law. Events have shown these facts to be false.
* * * * * * * * * * * * * * * * * * *
Pension Bill Report Stage, Wednesday 19th May
Paul Gill (of BUSM) has put together the following key points and useful extracts from the debate:
Key points
- Milestones / timetable as in the first quote below
- It looks likely we will get over 50% and less than 90% of compensation, much depending on how well the new fund does.
- Earliest payment dates ASAP from April 2005. (November 2005?)
- New fund to consist of £20M/year from HMG, Donations from companies, and existing pension pots.
- This is a hardship/assistance fund, not compensation.
- The April 1997 date is not set in concrete. It could be amended in the Lords.
- Solvent employers are outside the scheme at present but, because of the form of the bill, they can be included at a later stage. We must ALL press for this during the passage through the Lords and during the consultation process. Overall just who is, and is not, included is a little vague.
The following quotes are representative, though clearly you will need to read it yourself to form your own view. Note they are in no particular order.
The full Hansard report can be found here
Malcolm Wicks: By the end of May we shall have established our relationship with key partners, including trade unions, as all levels. Over the summer we will be doing critical work on the design of the scheme so that by the end of November we will be able to consult on regulations. By the spring of next year—just one year away—we will have a scheme in existence, with a view to being able to make the first payments as soon as possible.
Mr. John Redwood (Wokingham) (Con): The Minister says that the figure is £200 million over 20 years, but he also says that he does not know how many people will be affected. If he discovers that many more people are affected, will he increase the sum, and if far fewer people are affected, will he decrease it?
Malcolm Wicks: We are about to publish a report examining the evidence base on that question, and the collection of that data is obviously at an advanced stage. The pensions industry also has an opportunity to contribute more money. As the Government have no legal liability, the word "compensation" is not appropriate—it is an assistance programme—but we feel that there is an ethical duty to act, as well as a need to restore confidence in pensions. I would hope that the pensions industry, too, recognises that responsibility.
Mr. Field: No, of course, I do not think that sum enough. If I had been a little quicker when the Secretary of State for Work and Pensions asked me to withdraw my clause—in fact, it was tabled by my hon. Friend the Member for Sittingbourne and Sheppey—I should have said, "I will do so on condition that you give Government time for the Bill on unclaimed assets that I introduced a couple weeks ago." Of course, £400 million is not enough. If anything, I am critical of the Government coming up with £400 million. Why should our hard-pressed taxpayers, who are earning away, contribute £400 million, when we could use the large sum that has been lying idle, sometimes for 100 years or more?
I make a plea to the Government. It might go down well among Labour Members to say that the industry should make a contribution. If the Government are serious in that, they are in danger of having their sanity tested. We have charged the industry £5 billion a year in extra taxation. If we think that those who have done well by their schemes to ensure that they are not in deficit will now come up with even more funds to keep someone else's scheme going, we are living in cloud cuckoo land. So by all means make that point if we want to make a party point, but please do not be misled by one's own rhetoric into thinking the industry will come up with the money to save us on this one.
Mr. Webb: The new clause is a breakthrough. It is the first time that the Government have accepted that it is legitimate to use taxpayers' money to help people who have lost their pensions. It is entirely welcome and I hope that every hon. Member will support it. I hope the House will note the lack of a "but" at the end of that sentence, although there will be one later.
Mr. Willetts: It is very difficult for the Opposition to estimate the scale of the problem. We have been pressing Ministers about the 60,000 figure, which was offered by the Secretary of State when we asked him for an estimate of the number of people affected. Given that we have hit the limit for public expenditure on this matter, I believe that the only way forward is to increase the financial support for people who have lost out by using the unclaimed assets to which I referred earlier. That is something that the Chancellor specifically referred to in the Red Book this year. It states on page 116:
"Where assets and owners cannot be reunited, it is also right that the assets be reinvested in society, as long as the original owners' entitlements to reclaim are preserved."
The Chancellor has his eyes on that money, and the Irish Government have introduced reforms aimed ultimately at claiming unclaimed assets after 15 years.
The House faces a problem today that is as serious as the problem we faced before. In some ways the problem is worse, because many people think—as a result of the announcement and the amendment—that their problems have been solved. Their problems have not been solved. Therefore, either we need yet further public expenditure or we should use the unclaimed assets, and I favour the latter approach.
Kevin Brennan: Does the hon. Gentleman acknowledge that his calculations assume that all those involved will retire on the same day? The key to the amendment is the ability to take the assets in the pension funds in question and to use them more effectively than simply by purchasing annuities, in order to build a fund. The hon. Gentleman is being slightly misleading in his calculations. As for early-day motion 200, the word "full" does not appear in it.
Andrew Selous (South-West Bedfordshire) (Con): Will my hon. Friend comment on the fact that it is curious that Ballast Wiltshire continues to be able to trade in the Netherlands, despite having so short-changed its UK employees? Does he agree that there is a case for the European Union to look much more seriously at companies that defraud their pensioners in one member state but continue to trade elsewhere in the Union?
Mr. Willetts: The issue first got on to the front pages with Maersk, although that company changed its mind and decided to support the company pension scheme. Maersk would not be covered by the provisions in the Government's amendment, and my hon. Friend makes an important and interesting point.
Bob Spink (Castle Point) (Con): Will my hon. Friend add to his list the Bradstock group, where there was a solvent wind-up that affects many of my constituents? They feel that the Government's treatment of them is terribly unfair.
Mr. Willetts: My hon. Friend gives another good example of solvent wind-ups that are not covered by the Government's new clause. The purpose of the Liberal Democrat amendment is to cover such people and I fully accept that there was a serious omission from the announcement.
Alan Howarth: The hon. Gentleman has indulged in a variety of expressions of sympathy this afternoon. He has indicated that he would not rule out the possibility that it might be appropriate for assistance to be given to the victims of Equitable Life and to the victims of solvent wind-ups. As I agree that there is not the remotest fiscal scope for providing adequate help to all those deserving cases, how is it to be afforded? He suggests that the unclaimed assets will provide what is necessary, but is he not at risk of spending that nest egg several times over?
Mr. Willetts: The House may not face the decision today, but I am sure that as the penny drops about the very limited scale of the Government's announcement Members on both sides of the House will have to decide whether to explain to their constituents, "This is all there is and there is no more", or whether we should aim to do more. I do not claim that we could give 100 per cent., and we certainly need to see the figures. We are still waiting for Ministers to provide them. The money from unclaimed assets that the Chancellor identified in the Red Book would enable us to do more and we could plug a large loophole in what the Government have announced today—namely, the position for victims of solvent wind-ups. That is the proposition that I am putting to the House.
Kevin Brennan: It is vital that the trade unions are involved in the consultations and the setting up and fashioning of the scheme. We must do everything that we can to maximise the value of the remaining assets in the pension schemes that have been wound up or are winding up. We must ensure that the three-year review, which is a key part of the measure, takes place, and the review must act if it finds that the scheme is inadequate and is not providing substantial help.
Mr. Adrian Bailey The news of the Government new clause, presented last week, was wonderful news for those workers. I share that feeling of joy, but I also feel a certain circumspection and concern. We do not know how much there will be and we do not know whether that particular case will fit with Government guidelines. I do not expect the Minister to make a determination on this particular case at this moment in the debate, but I should like reassurance that the representations of the unions, the employees and the members will be taken into full consideration and that we will have a sympathetic response. I do not need to tell the Minister that the worst possible outcome is to raise people's expectations and then to dash them. We would expect the Government response to be consistent with the declared objectives of the proposal.
One final light-hearted point: there is no truth in the rumour that the government introduced the bill to prevent Derek Wyatt MP taking part in a repeat of the “Stripped of our pensions” event on the beach at this year’s Labour Party Conference!
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Report on the meeting with the NAPF, Tuesday 11th May.
| Present: |
|
|
| Christine Farnish |
NAPF |
(CF) |
| Dave Allen |
Dexion |
(DA) |
| John Hayter |
ASW |
(JH) |
| Brian Mealing |
Kalamazoo |
|
| Dr. Ros Altmann |
|
(RA) |
| Justin Harper |
Daily Mail |
(observer) |
JH. Started by asking CF to explain her change of attitude towards our cause.
CF. She said she had never been opposed to compensation. In a BBC You and Yours interview she had stated that despite our plight there were millions of people who have good pensions and this had been interpreted as opposing our cause. In fact she strongly supported compensation to resolve our case because she felt it was justified and that our claim was causing damage to her industry.
RA. Asked for her prediction as to the outcome of our claim.
CF. She was not prepared to do that. However she felt that our campaign was having great success particularly with media coverage. As a result there was a lot of pressure on the Government to come up with a solution in next weeks third reading of the Pension Bill.
RA. Appealed to CF to use her influence in whatever way she could to persuade the Government, particularly the Treasury, to resolve our claim. She reassured her that the figure of £75 million per annum should be the total bill.
CF. Stated that her organisation had already challenged Gordon Brown on his tax of £5.3 billion per annum on Pension Credits. The response was that it was already committed and that large amounts of money are put into pensions by the Treasury. Her view was that the Treasury should be able to find the money from somewhere i.e. £2 billion per annum is lost through benefit fraud and our claim would represent only two weeks worth.
A survey among her organisation had disclosed overwhelming support for compensation. Of 744 members balloted 90% were in favour of compensation. 80% thought Government should compensate. A general discussion took place between the group regarding compensation.
CF. Stated 100% compensation would be unrealistic. Although compensation existed within the Industry the level was always lower. The new Bill will only pay 90%
JH. Stated that if criminal elements were involved 100% compensation can be claimed. It was made VERY CLEAR to CF that we would not be prepared to accept anything less than our full entitlement: 100% compensation -- 100% Justice!
CF. Announced that the three day annual NAPF Conference would start on Weds 12th May and that Andrew Smith had been invited to speak. The group asked her to maximise on the opportunity.
DA. Offered to attend the Conference and contribute in any way possible. To speak, pose questions to speakers or simply mix with delegates to inform them of our plight. This offer is being considered.
The Pension Group members felt it had been a worthwhile meeting and that it confirms we have a strong ally in the NAPF.
The NAPF press officer subsequently contacted Dave Allen asking if we would like a question put to Andrew Smith on our behalf. He will be asked the following:
”Apart from the financial damage incurred, has the Government considered the social and health implications which this great injustice is causing?”
* * * * * * * * * * * * * * * *
Meeting of Samuel Jones Pension Scheme Members with Malcolm Wicks
Thursday 6th May 2004
This document is compiled from the notes at the meeting with Pensions Minister Malcolm Wicks. They are not intended to be read as the actual minutes of the meeting.
A delegation from the Samuel Jones Pension scheme met with Malcolm Wicks MP the Minister for Works and Pensions, at Richmond House Whitehall
Members of the delegation were:
Steve Searle, trustee and GPMU Union official. (SS:)
Marilyn McDonough, deferred pensioner. (MMc:)
Paul Mason, trustee. (PM:)
Brian Western, pensioner and former administrator of the fund. (BW:)
Alan Marnes, trustee. (AM:)
Also present were
Andrew Bakewell, Independent Trustee for Alexander Forbes Ltd. (AB)
Jonathan Djangoly, MP, for Huntingdon who arranged the meeting for us. (JD:)
A copy of the brief history of the Samuel Jones scheme was given
JD: I have been approached by a number of my constituents re the Samuel Jones pension scheme and asked if there was anything that could been done on their behalf. They were looking for an amendment to the Pensions Protection bill, which was currently going through Parliament, with a view to obtaining some form of compensation for their almost total loss of pension provision. Many felt that part of the current problem stemmed from the present government decision to tax the dividends on pension funds share holdings, this to the tune of £5 billion per year. The proposed pension protection fund is not proposed to be retrospective and therefore will not cover those people whose schemes are already in wind-up.
MW: Dividend was taxed because it was not being used for the right reasons i.e. it was not being re-invested.
SS, MMc, PM, BW, AM, Outlined what pension in wind up of the S.J. scheme means to those who have not already retired. There will be no funds left to pay the deferred and active members at the time of S.J.P's Administration, this is because wind up regulations currently say that existing pensions in payment must be secured by purchasing annuities. Indeed it may be the case that current pensions in payment may not even be met.
PM: Stated that Pensions in payment had been frozen at current levels, therefore pensioners will not receive increases.
AM:The new powers of 27th April state that Parent companies will have to compensate their group subsidiaries that go into liquidation. This is retrospective legislation, why can't this apply to all occupational schemes?
BW: Retrospection in other cases has happened in the past, so why couldn't it be applied to the P.P.S. Most of the problems with scheme wind-ups appear to have happened since 1997.
MW: I am aware of this.
MW Why is the fund so short? (c£15 M)
PM,AM: Described how the fund went from an ongoing healthy state in 1998 to the position we now find ourselves in, mainly due to redundancy settlements and equity investment decline.
SS: Described one serious concern in that he, in his capacity as a trade union representative, had written to the company/trustees regarding the S.J. scheme's ability to pay enhanced pensions and the company’s ability to pay extra contributions to fund these pensions. The Actuary had replied that the company was meeting the cost of the enhanced pensions.
MW: Why did the company go bust?
AM: It was generally thought that the parent company, Rutland Trust. Sold all the profitable parts of the company, then had all of its debt in SJP, then pulled the plug. This debt included a significant debt on the SJ pension fund.
MW: Have you thought about approaching Rutland to make up the deficit?
JD: The S.J. pensioner group in conjunction with the scheme and their legal advisors are pursuing this as a separate issue.
AM: But we as members of the S.J. pension scheme in wind up cannot sit and wait for any possible outcome of pursuing Rutland Trust to make up the short fall in our pension fund. We must make representation to the government to compensate our scheme, plus the 60,000 others in this country in similar situations and address the short fall in pension schemes assets.
MW: We have collated information on a number of schemes including the S.J. scheme. The time is fast approaching when we will have to go to the report stage, but as things stand at the moment the government position remains the same and I can’t offer you anything. I have great sympathy for you and other 60,000 people in this predicament.
AB: Several Pension schemes that his company are acting for as independent trustee along with other pensions professionals, have drafted what they consider to be a workable rescue package for beleaguered pension schemes. This they will forward to the D.W.P. in the next few days.
AM: A number of ideas have been put forward by government policy advisor Dr. Ros Altmann and others, the most favoured one is the use of unclaimed assets to compensate for future pensions provision.
PM Currently these unclaimed assets are said to be around £15 billion, they are sitting in dormant/ untraceable share holdings, bank and building society accounts etc.
MW: The rightful owners could eventually reclaim unclaimed assets and some of Dr. Ros Altmann’s ideas involved the taxpayer paying for compensation. Many ideas were being looked at.
MMc: I’m now too old to make up what I have lost and I'm worried that I may be penalised for being a member of a failed pension scheme, by not being able to claim benefits, I offer a press cutting from a recent copy of the Times news paper, outlining this added injustice to us.
MW. Do the members know what to expect as a pension when they retire?
PM.: Members of the scheme have been written to explaining the dire position of the scheme.
BW: Did the government realise that it would be challenged in the European courts if there was no satisfactory outcome to this situation.
MW: I am aware of the steelworkers union and others taking legal action against the government.
AM: A compensation scheme for pension scheme wind-up was proposed by NAPF in a discussion paper in1992. (A copy was left with MW's secretary) This quoted from Rt. Hon. Peter Lilley the then Secretary of State, emphasising the value of "maintaining faith in the integrity of occupational pension funds". Why have successive governments failed to act on this?.
MW: I am really sympathetic to your case as you, unlike most other schemes, seem to have lost everything except what S.E.R.P's would have provided, I am also sympathetic to people who were with Equitable Life, although I realise that this is a different issue.
SS: People in Equitable Life had a choice where to invest their money. In some occupational schemes cases, people were compelled to join their company pension scheme. At S.J. we had a choice; all the advice from Government, the pension industry and even Trade Unions was that you could not beat a guaranteed company final salary pension scheme. They said if your company had one, go into it.
BW: Is there anything positive that we can take away from this meeting to tell our members?
MW: You can tell them that we are looking at a number of options but that we do not want to raise false hopes. Although you have my sympathy I must emphasise that the government position remains the same. In the very near future we will again be reporting to Parliament on this issue.
SS: As a trade union official and Labour supporter I cannot believe that this is happening under a Labour Government.
AM: Nobody warned us there was risk in occupational pensions; the words guarantee and assurance were used regularly.
SS: We don't know of anybody from our scheme that has the confidence to invest in alternative pension provision since the demise of our occupation scheme.
AM: Had we been civil servants, farmers, railway employees pre privatization or indeed politicians we would not be in this position now, we the 60,000+ implore you to do the right thing by us, please listen to your professional advisors like Dr. Ros Altmann. Then and only then, will we that are working in the private sector, have the confidence to invest in pensions once again.
AM: Please call a halt to the wind up of pensions schemes, because if they continue the only people that will benefit are the share holders of the insurance companies, who are providing annuities. They don't do this for our benefit, they are only using these funds as a vehicle to make more profits for themselves. These pension schemes were set up to provide for employees pensions. Pool these funds. Do it now as potentially, every day that passes, more and more public money will be needed to put this problem right.
AM: Along with the 60,000+We have lost years of funding opportunity this we can never never get back...
All thanked Malcolm Wicks for seeing our delegation and Jonathan Djanogly for arranging this meeting on behalf of all the members of the Samuel Jones Pension Scheme.
Personal profiles were left of several members of the scheme. These included
Mr. Peter Smith (sales), Mrs. Marilyn McDonough, Mr. Alan Marnes.
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Press Release from ISTC and Amicus
Pension justice is affordable say unions
Amicus and ISTC unions say new figures show that pension justice is affordable.
Work commissioned by the two unions from an independent pension actuary and a leading pension expert, estimates that compensation should not exceed £76m per annum over 30 years and may be as low as £50m a year over the same period, falling significantly below all previous estimates.
Amicus and the ISTC say the figures show that the government can afford to compensate workers who have been left without all or substantial parts of their expected pensions when their companies have become insolvent.
Derek Simpson, General Secretary of Amicus, said:
“The Prime Minister’s statements on our campaign in the last two Prime Minister’s Question Times have been welcome and encouraging news. The Government know that restoring our members expected pensions is the right thing to do and our figures show that it is affordable too.
“The thousands of people who have paid their pension contributions throughout their working lives deserve to enjoy their retirement free from financial stress.”
Michael Leahy, ISTC General Secretary, said:
“Bryn Davies & Ros Altmann’s research for the ISTC & Amicus, which we have sent to the Prime Minister and relevant Cabinet Ministers, suggests that the cost of restoring the expected pensions of those formerly employed by ASW, and thousands like them, is substantially less than previously estimated.
“£76m a year over 30 years is a small price to pay for restoring confidence in the UK pensions system and lifting the threat of hardship in retirement from thousands of people who were told their pension was safe, only to have it snatched away from them when their employer became insolvent. I urge the Government to now introduce their own amendment to the Pensions Bill by its 3rd Reading or face the prospect of Labour backbenchers moving their own, which we would expect to be backed by all the other political parties.”
The Prime Minister said during the last two Question Times that the Government are examining the cost implications of compensation for the thousands of people affected in companies such as ASW, UEF and Dexion. He has indicated that the Government will be ready to make a positive announcement during the course of the Pension Bill.
Labour MPs, led by Kevin Brennan MP, have stated that if no such amendment or firm proposal is announced by the Third Reading of the Bill, expected to be later this month, then they will table their own amendment to restore the pensions of those who lost them through employer insolvency.
Amicus and the ISTC are currently taking legal action for the failure of successive UK Governments to properly implement a European Directive on insolvency, making them liable to compensate workers who have lost out through no fault of their own. If the issue is not dealt with in the Pensions Bill and the legal action is successful the Government will be liable for compensation in one lump sum rather than spread over 30 years.
Notes for Editors:
1. £14 billion of pension tax incentives are paid every year in the UK. 50% of this amount is paid to the top 10% of earners
2. Government compensation for farmers who had to slaughter herds over CJD and mad cow disease amounted to £300m per annum.
3. ISTC – the Community Union and Amicus have issued a High Court claim on behalf of 1,000 pension scheme members of Allied Steel and Wire Ltd (ASW) from Cardiff and Sheerness who lost the bulk of their pensions when the company was declared bankrupt in 2002, leaving two pension funds in deficit.
4. Article 8 of the Insolvency Directive reads:
“Member States shall ensure that the necessary measures are taken to protect the interests of employees and of persons having already left the employer’s undertaking or business at the date of the onset of the employer’s insolvency in respect of rights conferring on them immediate or prospective entitlement to old-age benefits, including survivors’ benefits, under supplementary company or inter-company pension schemes outside the national statutory social security schemes.”
5. 298 MPs of all parties – including over 200 Labour MPs – have now signed Kevin Brennan MP’s EDM 200 calling for the Government to restore the expected pension benefits for those who have lost them due to employer insolvency.
* * * * * * * * * * * * * * * *
Amendments to the Pension Bill
Following the committee stage, amendments are tabled for the report stage (third readng) of the bill.
The two amendments below have been tabled so far. An amendment will also be tabled by Kevin Brennan if there is no government action prior to the third reading.
Amendment proposed by Derek Wyatt:
The Secretary of State shall within 3 months of this Act receiving Royal Assent
(a) lay before both Houses of Parliament proposals for legislation to introduce a compensation scheme for certain members of occupational pension schemes who are not covered by the Pension Protection Fund and as may be defined by regulation and
(b) report on ways such a compensation scheme may be financed.
Derek Wyatt, Frank Field, David Willetts, Nigel Waterson, Adam Price, Annabelle Ewing, Martin Smyth, Jeffrey Donaldson, Sandra Osborne
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Amendment proposed by Steve Webb:
(1) The Regulator shall provide the Secretary of State with a copy of a list of members of occupational pension schemes ("the List") which meet the conditions in subsection (2).
(2) A scheme whose members shall be eligible to be included on the List is one which-
(a) commenced winding up after 5th April 1997, and
(b) whose members would have been eligible for pension compensation from the Board of the Pension Protection Fund if the scheme had begun winding up after the day appointed for the purposes of section 113 (2) (eligible schemes).
(3) The Regulator shall have the power to require trustees of a scheme
which meets the definition in subsection (2) to write to each member of the scheme to advise him of the existence of the List, and of how to apply to have his name included in the List.
(4) Trustees of a scheme which meets the definition in subsection (2) must provide such relevant information to the Regulator as he may require.
(5) The Regulator shall add to the List the name and address of each scheme member who would have been eligible for pension compensation from the Board of the Pension Protection Fund if the scheme had commenced winding up after the day appointed for the purposes of section 113(2) (eligible schemes).
(6) The Secretary of State shall be required to provide financial assistance to each person on the List.
(7) The amount of financial assistance payable to a scheme member under subsection (6) may be prescribed in regulations but shall not be less than the amount to which he would have been entitled if the scheme had qualified for pension compensation from the Board of the Pension Protection Fund.
The amendment was accompanied by the following statement from Steve Webb:
"Rather than put a long list of Lib Dem names on the amendment we have deliberately put only one name so far (my own) to leave room for other MPs - ideally from other parties - to add their names and confirm that this is not just a "Lib Dem" amendment, but truly an all-party one. We are determined that the injustices that so many workers have suffered should finally be put to an end, and we hope that this New Clause might prove the focus around which we can all rally."
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Yahoo Group E-mails
Quite a few people have spoken to me about problems receiving group e-mails of late. I have e-mailed Yahoo about these difficulties and have, alas, received no reply. Unfortunately I have no technical control over how the service operates, but the observations below might be useful:
The problems seem to start if Yahoo cannot deliver a message to you. Possible causes for this are your mail box being full, (something I have to watch), or your service provider applying severe spam filters or your employer, (if you are using a works address), blocking floating addresses such as Yahoo or Hotmail to stop Internet abuse.
The two virii Netsky and MyDoom are also causing problems with sheer volume of e-mail (over 50% is now junk) and it is possible that Yahoo may be having over-runs. I do know that group e-mails are a low level service so it is possible that we get affected by the volume of rogue e-mails.
I have been told that doing an unsubscribe then a re-subscribe has worked, i.e. blank e-mails to:
pensionstheft-unsubscribe@yahoogroups.co.uk
then in an hour or so send another to:
pensionstheft-subscribe@yahoogroups.co.uk
If you think you have missed any messages you can always view the group e-mails (albeit without attachments) at the group web address:
Note this is not the same as this www.pensionstheft.org site
If you are going to be away from home for a few days you can go to the Yahoo group website and turn off the e-mail forwarding whilst you are away. Set your membership to "web only". You can restore it when you return.
It may be worth setting up Yahoo or Hotmail addresses to receive group e-mails in addition to your home address. On the main Yahoo page go to Mail and follow the instructions to start a new e-mail address. It costs nothing and is actually very useful as you can use it from any PC in the world with Internet access.
When you have set up the floating address send a blank e-mail to the subscribe address to start receiving group e-mails.
I am very much a novice in this field and I would welcome any comments from people with more experience.
* * * * * * * * * * * * *
Amicus Pensions Survey
The trade union Amicus have conducted a survey on people’s attitude to pensions and how the government is handling the situation. The survey was conducted by an independent company in accordance with the code of conduct of the Market Research Society. There are 95% confidence limits of +/- four percentage points, i.e. taking the first point below it is near certain that between 79% and 87% of people feel that pension income should have legal protection.
1) 83% of all respondents feel that pension income should be legally protected; this is very close to the 81% of people in the NAPF survey who think the government should pay our lost pensions.
2) Over three quarters of respondents (77%) feel that the government is not doing enough to protect people’s pensions.
3) Nearly a half (45%) say that the government handling of the pensions problem could affect their voting at the next election.
4) Half of the respondents say that they do not trust any of the political parties to protect their pension. A further 28% are undecided. Only 13% trust Labour and 6% trust the Tories
5) 88% of all respondents feel there should be a legal obligation for employers to consult employees about changes to their occupational pension schemes which could reduce their income in retirement.
6) 72% of all respondents feel that employers should contribute to employees' pensions.
7) Just over 10% of respondents said they were unaware of any plans to increase the retirement age to 70, whilst 41% said that they thought it to be unreasonable. Just over a third thought it was fair, or that people lived longer so they need to work longer. 18% said they thought it unfair to change the rules for existing savers.
* * * * * * * * * * * * * * * * * * * * *
Meeting with Andrew Smith, 30th March 2004
Attendees; Julie Kirkbride MP, Ros Altmann, Micky Ball UEF, Willie Riggins UEF, Peter Wheeler Kalamazoo.
The meeting started with Micky Ball and my self explaining our particular circumstances regarding our pensions failure. I went on to mention that had I been aware of the risks I would not have left my pension in a company I believed would go into liquidation. I explained that we had met with trustees of the Kalamazoo pension scheme in 1997 to seek assurance that our pensions were safe as the company had just sold the division I worked in and I had become deferred. The trustees had said that the pensions were protected in law and that our pension would be there when we needed it.
Ros Altman went on to show the minister a communication from within the DWP which highlighted the risks and that there should be disclosure to members of these risks. She also showed him several leaflets from government bodies outlining the virtues of being in company pension schemes and the use of the word ‘guaranteed’. The minister seemed very interested in these and requested copies.
The minister said it was a great misfortune and that the government was examining the issues and compiling the evidence and that they were establishing the PPF so that this would not occur in the future.
The question of compensation was raised and the minister said that we need to be cautious in using the word ‘compensation’ and that perhaps discretionary assistance might be a more appropriate term. He implied that these pension schemes were after all private pension schemes and the government could not be used just to nationalise the risk. He questioned how we would draw the boundaries of who to assist and mentioned perhaps just helping those over 50 for instance. We said that we believed that would be unacceptable; that it was not for us to draw boundaries and that everybody who had lost pensions should be compensated.
The costings were briefly mentioned. 93 million pounds for 50 years was after all a lot of money. He wondered whether a more imaginative way of funding the assistance could be found. For instance, a broader public responsibility and perhaps help from the financial services industry.
Julie Kirkbride mentioned that the Conservatives supported Frank Fields suggestion to use orphaned accounts but he argued that all sorts of people would ‘come out of the woodwork’ claiming money for worthy causes. She said that this was a worthy cause.
He reiterated his much parodied phrase, that he didn’t want to raise false hope, but that the government is trying to find a solution.
He did come across as sincere and all attendees believed that the meeting was of great use.
After the meeting I asked Julie Kirkbride if she could arrange a meeting with a delegation from Pensionstheft with Michael Howard and she said she would ask the question.
Thanks yet again to Ros Altman for her continued devotion to our cause.
Peter Wheeler Kalamazoo
* * * * * * * * * * * * * * * * * * *
A little song and verse:
The Pensioners' Lament, a song for Gordon & Tony
by Paul Gill, ex BUSM
To the tune of Land of Hope and Glory. Best sung 25th March.
Britons hear our story
pensions poverty
like the Jarrow Marchers
21st century.
Lloyd George knew my father
a great man was he.
pensions for the workers
place in history.
Malcolm's false hope story
pensions promise 3
Britons never should be
ruled by men like he.
Come on Tony listen
to our humble plea
common sense and vision
save democracy!
Tony are you listening?
Gordon can you see?
robbing us of pensions
damned by history
* * * * * * * * * * * * * * * *
Prime Minister Pension Plea
by Barry Tillson, Perivan
We just want what's rightfully ours, Mr Blair
Don't turn your back on us all without a care
For we have been loyal workers all our lives
We deserve our pensions to share with our partners and wives.
Don't strip us of what is rightfully ours....be fair
We just want our pensions please Mr Blair!
We did everything by the book
But you don't seem to give us a second look
Do the right thing Tony in Parliament give us a mention
How would you feel with little or no pension?
Give us all compensation now and let justice be done
Don't put our families through this hell.. for it's no fun.
Wake up now Mr Blair - compensate us all today
for this problem won't just go away.
If you ignore our pleas we will be back to fight,
don't rob us of our pensions - you know it can't be right.
Regain our faith in Labour and you will get our vote
Ignore our plight and you will surely miss the boat
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Amicus & ISTC Notes for people who are going into the House of Commons to Lobby their MP.
These notes were drawn up prior to the demonstration for the second reading of the Pensions Bill. They are still a very good source of points and questions to discuss with your MP. Remember, you can visit Parliament and lobby your MP at any time (they have to see you), although practically it is better to arrange a meeting in advance.
State your case history.
Give:
- Years of service and your age
- Salary
- What pension you did expect to get
- What pension you have been told you will get
- Tell the MP how many in your work place have been affected
- When and how your company announced and went into wind up
- If you know the figure surrounding you fund, tell them
Ask your MP to write the Secretary of State Andrew Smith and the pensions Minister Malcolm Wicks stating your case and ask them to copy the letter to you.
Ask your MP if they have signed Kevin Brennan’s Early Day Motion (EDM200) on occupational pensions and if they haven’t urge them to sign it.
EDMs act like petitions and press the government to think seriously about the issue, the more signatures the better; it currently stands at 250 signatures.
Would they support an amendment to be tabled by Kevin Brennan, which would see existing assets that have not been used to buy annuities be brought in to the pension protection fund PPF and use to pay pension as and when they become payable? And a second amendment to set up a compensation clause to give assistance to people whose fund has been fully wound up and annuities have already been bought?
Other amendments we would like to see to the Bill would include clauses that would have consultation and compulsory Membership with minimum contributions for both employers and employees.
First to query the omission of consultation following the commitment given in the 'White Paper' Action of Pensions last summer,
Second to point out that employers are commonly announcing without any prior consultation increases in the level of employee contributions of 2-3% which immediately reduce employees pay or, if they do not agree, leave them with no benefit going forward - or alternatively announcing changes in retirement age of the rate of accrual going forward which can reduce the value of future pension being earned by 25%.
Third to argue that such unilateral changes are unacceptable and highlight a major gap in employment protection
Complain about the pension increase cap of 2.5% or limited price index (LPI). Also ask why, out of £14billion of pension tax relief, 50% of it goes to the top 10% earners in this country
[Andrew Parr additional note: Emphasise that nobody warned you of the risk you were taking with your occupational pension, and everything you had heard from the government, DWP, NAPF, OPAS, OPRA, your employer etc. had implied your pension was protected by the 1995 Pensions Act]
* * * * * * * * * * * * * * * * * * * * * *
Second Reading of Pensions Bill, Press Release from ISTC and Amicus
Union members from two trade unions from the former ASW steel company in Cardiff and Sheerness will stage a lobby outside the Houses of Parliament at 12pm (midday) on Tuesday 2nd March.
The members of ISTC and Amicus formerly employed at ASW will be lobbying Parliament and seeking to meet with their MPs on the day of the 2nd Reading of the Pensions Bill. They will be making it clear to MPs of all parties that confidence in the UK pensions system will not be restored unless they, and people such as them, who lave lost their expected pensions through no fault of their own, are compensated.
The ex-ASW employees will thank 240 MPs who have signed EDM 200, tabled by Kevin Brennan, Labour MP for Cardiff West, calling for the Government to provide compensation for people such as them.
The ASW pension scheme members will be drawing to MPs attention the legal action that the ISTC and Amicus are taking against the UK Government for failure to properly implement the European Insolvency Directive, which obliged them to protect workers pensions when their employers are declared insolvent.
The ASW scheme members will argue that this means that the Government is likely to have to pay for the shortfall in their pensions and try to convince MPs to resolve this via the Pensions Bill rather than through the Courts. Should the Government not admit its responsibility to the ASW pension scheme members, and others like them, the ISTC and Amicus will be urging MPs to support an amendment that will be introduced during the passage of the Pensions Bill to provide compensation.
Commenting, Michael Leahy, ISTC General Secretary, said:
“The ISTC and Amicus are determined to get justice for our members who were in the ASW pension scheme and that is why we shall be lobbying Parliament on 2nd March. The message for the Government is clear: confidence in the UK pension system will only be restored if the ASW pension scheme members, and others like them, are compensated.”
Derek Simpson, Amicus General Secretary, said:
“Amicus members at ASW, and other companies such as UEF, were told that their final salary scheme was secure but now they’ve lost almost everything. Successive British Governments have failed to adequately implement a European law that would have prevented this and, whilst we welcome the Pension Protection Fund, those who have lost out must be compensated.”
Notes:
1. ISTC and Amicus have issued a High Court claim on behalf of 1,000 pension scheme members of Allied Steel and Wire Ltd (ASW) from Cardiff and Sheerness who lost the bulk of their pensions when the company was declared bankrupt in 2002, leaving two pension funds in deficit.
2. Article 8 of the Insolvency Directive reads:
“Member States shall ensure that the necessary measures are taken to protect the interests of employees and of persons having already left the employer’s undertaking or business at the date of the onset of the employer’s insolvency in respect of rights conferring on them immediate or prospective entitlement to old-age benefits, including survivors’ benefits, under supplementary company or inter-company pension schemes outside the national statutory social security schemes.”
3. If successful the case, which is being taken to the European Court of Justice, will set a precedent for thousands of other workers who have lost pension benefits when their employers have gone out of business. This will include, the former workers at United Engineering Forgings Ltd based in Ayr, Chesterfield and two other locations, which went bust in 2001, leaving its pension fund in deficit.
4. The case is likely to be heard in the High Court in the first half of 2004, at which point Counsel for the unions will request that it be transferred to the European Court for a hearing at the earliest possible date.
5. ISTC and Amicus are supporting Kevin Brennan, Labour MP for Cardiff West, who has pledged to table amendments to the Pensions Bill, to provide for compensation for his constituents who were members of the ASW pension scheme. The unions have provided a “Bill Team” for Mr Brennan to draft an amendment and will be urging MPs of all parties to support it.
6. Interview and photo opportunities will be available for the media from 12pm, Tuesday 2nd March on College Green
* * * * * * * * * * * * * * * * * * * * * *
The following exchange of letters took place in the Financial Times from 16th February 2004:
From Mr H. R. Wynne-Griffith.
Sir,
Once again the government, in seeking to find a quick answer to difficult pensions issues, has come up with the wrong one with its proposed new Pension Protection Fund.
There is risk in all that we do and that applies to pension schemes just as much as to any other aspect of our lives. It is wrong of the government to seek to remove all risk from the shoulders of employees in final salary pension schemes and yet leave the very same risk (although manifested in a different way) to be borne by those employees who are in money purchase pension schemes (and they will soon form the majority).
The government wants to shift to employers the full risk for employees in final salary schemes while offering no protection whatsoever to employees in money purchase schemes. Why this imbalance? What have those employees done wrong to have been so cruelly ignored? Surely all employees should bear some risk - regardless of the kind of scheme they are in? The proposed Pension Protection Fund should be redesigned.
It is, of course, a tragedy that up to 30,000 people have had their pension expectations reduced but the greater catastrophe is that bad pensions legislation (from all recent governments) is now threatening to leave millions with lower or no pensions in future (except for MPs and state employees, naturally).
Knee-jerk legislation in reaction to examples of life's unfairness always back fires. This happened with the post-Maxwell legislation and so it will with the Pensions Protection Fund. Will politicians never learn?
H. R. Wynne-Griffith
From Dr Ros Altmann.
Sir
The tone of Huw Wynne-Griffith's letter (February 16) is breathtaking. Perhaps actuaries always knew that contributions to final salary schemes were not protected, but the members certainly had no idea.
Members were told that their accrued pension rights were protected in law and that actuaries would calculate contributions, in line with the minimum funding requirement, to ensure adequate funding to pay the promised pensions. Literature from the government, the Financial Services Authority, the Occupational Pensions Regulatory Authority and everyone else contrasted the safety of final salary schemes with money purchase arrangements, where members' pensions were not guaranteed.
Simply to say it is a tragedy that thousands of people have had their pension expectations reduced is an insult to those who have suffered in this way. This is not an example of life's unfairness; this is more like fraud. Other victims of mis-selling receive compensation. Having contributed their money loyally for 30 or 40 years, with the promise of a secure pension and no risk warning from anyone, many now find not that they will get a reduced pension but that they will get no pension at all. Even worse, their state pension will be reduced too, so they would in fact have been better off throwing their contributions away, than putting them into their employer's schemes. Is it any wonder that people are frightened of pensions and have lost confidence?
If we want individuals to save for their old age, we must offer them more protection. A minimum level of insurance is essential for employer schemes. Rather than criticising moves to improve safety, Mr Wynne-Griffith would do better to lament the lack of protection for money purchase pensions and encourage more security for these too. I do hope the rest of the actuarial profession is more concerned about the interests of scheme members than Mr Wynne-Griffith appears to be. After all, surely the purpose of pension funds is to pay pensions.
Ros Altmann, Governor, London School of Economics, London N3 3EE
* * * * * * * * * * * * * * * * * * * * * *
Press release from Kevin Brennan MP
Date: Thursday 12th February 2004
Pensions Bill must compensate ASW victims says MP
Reacting to the Pensions Bill published today, Kevin Brennan, Labour MP for Cardiff West – many of whose constituents lost the bulk of their pensions when Allied Steel and Wire Ltd. (ASW) became insolvent in 2002 - said that the Bill needed amending to provide compensation for the ASW victims and people in a similar situation. Mr Brennan confirmed that, if the Government did not introduce such an amendment during the passage of the Bill, he had been working the ISTC and Amicus unions “Bill Team” to draft such an amendment.
Commenting, Mr Brennan, said:
“There are many things to welcome in the Pensions Bill, which begins to right some of the wrongs perpetrated by the last Tory Government during their 18 years in power. The proposal to establish a Pension Protection Fund (PPF) to protect the pension benefits of employees in company pension schemes in the event of their company becoming insolvent is one that I know my constituents will welcome.
“However to restore faith in the pensions system I believe that we must provide compensation to my constituents who were members of the ASW pension scheme. As I listened to them describe the shattering effects of not only losing their jobs but also the pensions that they were told were guaranteed I have thought, would I allow it to happen if this was my dad? Of course I wouldn’t and nor do I think Ministers.
“239 MPs of all parties – including over 155 Labour MPs – have signed an Early Day Motion (EDM 200) I have tabled in support of compensation for the ASW victims, who lost their expected pension through no fault of their own. This is one of the largest numbers of signatories for any current EDM and I am glad of the support that I have received from colleagues on all sides of the House with little or no lobbying by me or by unions. This is an indication of the strength of feeling that this issue raises with MPs from every party, and I expect that more will sign it in the next few days.
“I hope that the Government will recognise this and address the issue during the passage of the Bill. If they don’t, I can confirm that I have been working with the ‘Bill Team’ arranged by the ISTC and Amicus unions to draft an amendment to provide compensation which will be tabled in due course.”
* * * * * * * * * * * * * * * * * * *
When John Benson, ex ASW Cardiff, handed in the petition to the Welsh Assembly on 4th February, Rhodri Morgan, the leader of the Welsh Assembly, refused to accept the petition personally, and gave the press release below. The petition was handed to the Assembly via the Plaid Cymru assembly members
Rhodri Morgan statement on unofficial ASW protest
Cardiff West AM RHODRI MORGAN said:
"The situation facing the ex-employees of ASW with regard to their pension rights is an absolute tragedy. As the full enormity of the situation emerged I met with members of the !STC and Amicus unions to listen to their fears at first hand.
"I have written to Andrew Smith MP, the Secretary of State for Work and Pensions, urging him to find a way of providing compensation to the ASW pension scheme members. Confidence in company pension schemes has taken a huge knock and needs to be restored. Following recent correspondence with the ISTC, I am again writing to Mr Smith urging him to use the opportunity of the forthcoming Pensions Bill to right this wrong. I and the Labour Group of AMs hope that he will take that opportunity.
"I know that the ISTC and Amicus have begun legal action against the UK Government on behalf of their members at ASW - including Mr Benson. I hope that it won't come to that, but they are clearly right to explore every possible route to secure and restore decent pensions in retirement for their members.
Backing ISTC calls for former workers of Allied Steel and Wire to be compensated for losing their pensions, Cardiff South and Penarth AM LORRAINE BARRETT said:
“I fully support the ISTC and former workers' campaign to be compensated for losing their pensions. Many of these workers lost their final salary occupational pensions schemes despite being promised that their pensions were guaranteed. We must maintain the pressure to get compensation for the former workers who have been stripped of their pensions through no fault of their own."
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Open Letter to Tony Blair
Many letters have been written to Number 10 but these invariably are bounced on to the DWP. Jacqui & Peter Humpreys have now written an open letter to Tony Blair which was printed in the Daily Telegraph on Saturday 10th January; the day we closed Oxford Circus. It will be interesting to see if an open letter elicts any response:
Dear Mr Blair . . .
In an attempt to get your personal attention after failing on numerous occasions by letter we make this open letter approach to you.
Hopefully you are aware of the current dilemma that many of this action group find ourselves in, due to no fault of our own but to flaws in pension legislation.
In summary, many of us find that after loyally serving our individual companies for 25 to 45 years and contributing to what were often compulsory final salary pension schemes, we are now left fighting for compensation due to these companies either selling out, being placed into receivership or liquidation and putting our pension schemes into wind-up.
Without any warning we suddenly find we are left with much reduced expectations of our hard-earned pensions, and in some cases we are told we may get no pension at all - not even our Guaranteed Minimum Pension.
We have been actively involved in campaigning for compensation, talking to your ministers Andrew Smith and Malcolm Wicks, both of whom say they are willing to listen to "sensible suggestions" without promises. We can understand why no promises can be made to finance schemes that are being wound up, but we fail to grasp why this Government cannot introduce some "sensible" interim legislation that would allow a period of thorough analysis.
The biggest and most immediate worry for us going through this trauma is that our contributions are being used to buy annuities for current pensioners. This is a point that Dr Ros Altmann, governor of the London School of Economics, has made on many occasions, as have leading financial editors in much of the UK press.
We ask you why this cannot be stopped, either by government instruction or by immediate legislation in the forthcoming Pension Bill. This would allow our money to remain in our pension schemes for now, while the Government considers the possibility of compensation.
If we are no longer forced to buy annuities, it is obvious that much of the panic would be removed and perhaps then precise financial modelling could be done for each scheme that is going through the wind-up process.
Clearly the purchase of annuities is draining what cash is available and those of us close to retirement are feeling helpless while insurance companies benefit at the expense of others. This would cost the Government nothing and current pensioners would not be affected.
If the Government were to stop the compulsory purchase of annuities, it would show us that you are facing up to this issue. This would take a lot of pressure out of the system and protect the cash that is within these schemes. If you are then able to agree to compensate us in the future the fact that most of the cash would not be in annuities may mean that the corrective bill is far less than it would otherwise have been. In addition you would claim the moral high ground and that is what we would expect from a Labour Government.
It seems to us, therefore, that Dr Ros Altmann has provided you with a "sensible suggestion" and it is one that will not cost the Government anything until the full financials have been completed. Surely it is time to find out how much this problem will cost to fix. The longer you allow annuity purchase the bigger the potential bill will be.
The Pension Action Group
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The Actuary’s Big But
A modern story in two acts
Act One
You must put 5% of your pay into the pension fund
It is safe, in fact we are proud of it
It is a condition of your employment here so you have to join
The Government rules won’t let you join another fund
The Company has put nothing into the fund for years because the actuary says it is OK
The actuary says that the amount of money in the fund is enough to pay all the pensions.
Act Two
Sorry, the company has gone bust
Sorry, this means the fund must be wound up
You said the fund was separate and that it was safe
I forgot to mention that the actuary has a big but
What do you mean?
Well, the rules change when the fund is wound up
What do you mean?
Well the people who are already retired must be looked after first and as the fund can’t continue we need to go and buy them individual pensions on the market.
So what, this sounds quite fair
Yes but there is a big but coming up.
What, you mean the actuary’s big but?
Yes, its really big
Go on then tell me.
He says that buying these pensions on the market costs twice as much as he allowed for when he was giving the company a contribution holiday BUT the rules allow this.
BUT THE RULES ALLOW THIS?????
Yes, and you pay because the fund will have no money left when the pensions have been bought
You mean I get no pension?
er....Yes.
If you have heard of the stuffer and the stuffee in business, you will realise that the Government and the Actuaries are in the former category and you are in the latter.
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Statement from Derek Wyatt MP 23rd December 2003
Derek Wyatt, Labour MP for Sittingbourne and Sheppey, was the first MP to grasp the awfulness of Occupational Pension schemes going into Administration through one company in his patch - ASW Sheerness - which went into Receivership in the first week of July 2002. He has worked with the ASW Pensions Group, as well as trade unions including ISTC and Amicus, the CBI, the Institute of Directors and the British Chamber of Commerce to try and find a solution. ASW Sheerness have had meetings with No.10, Ian McCartney MP and Andrew Smith MP. Together we have marched up Whitehall twice. Together we have built a national campaign culminating in two very different activities - the "Stripped of Our Pensions" day at the Labour Party Conference and the cross party Pensions Summit on 4th November 2003. Both received widespread national and international media coverage.
Here is his assessment of where we are:
The Proposed Pensions Bill
Q. Who will pay the insurance premium?
A. The industry and/or the purchaser. Maybe that's why the CBI/IoD and CoC aren't happy bunnies.
Q. How much will it be?
A. Don't know; waiting for figures to be published.
Q. Will it be retrospective?
A. No.
Q. When will it be introduced in the House?
A. Soon - January is a difficult period for the Government with the Hutton Report and subsequent reaction taking at least a week; then there is the small matter of Top Up Fees which may or may not be introduced after Hutton but let's assume that's a Yes then that means it is unlikely the Pensions Bill will happen before the first week of February.
Q. Could the Government introduce the Bill in the House of Lords first?
A. They could but they couldn't risk a defeat at Second Reading.
Q. Will there be amendments made at Second Reading to cover the (ASW and others) compensation issue?
A. There could be but if these were defeated at this stage we'd all be pretty upset; it's best to do this at Committee Stage.
Q. How do I find out more about what a Second or Third Reading is and even what a Committee Stage means?
A. You can go to the parliament web-site and you'll see explanations there; you can write to the Education Department at the House of Commons, London SW1A 0AA and they will send you information; you can also ask your own MP.
Q. Who selects the MPs who sit on the Committee Stage?
A. Good question - the Whips of the main parties.
Q. Have you applied?
A. I have but that's not a guarantee.
Q. What are our best options to make sure some kind of payment is made to those whose Occupational Pensions are in Administration?
A. Campaign like fury; we now need to work out a schedule of activities between now and the Second Reading and I will be talking to the ASW Pensions Group shortly; I know there is a march planned for 10th January 2004 in Oxford Street.
Q. What about the court case regarding EU legislation?
A. Amicus and the ISTC trade unions are confident they will win. Time is an issue as it is likely to take two further years unless the Government concedes.
Q. Can you think of a solution to this thorny issue for the Government?
A. Dr Ros Altmann has been acting as an unpaid advisor to many of us and she has put forward a number of solutions which have been well documented; Frank Field MP has also suggested in his Private Members bill looking at Orphan/Unclaimed Funds; I have suggested that the Government's sets up a National Occupational Pensions Fund for those Pensions in Administration between 5th April 1997 and 5th April 2005.
Q. Any other avenues that could explored?
A. My instinct at this moment is that if I was Andrew Smith MP and I was going to put this Bill on the Statute book then I could not afford to ignore the 200 odd schemes in Administration even though these are not, (except in Northern Ireland), government schemes and so there is no legal liability (the current court case notwithstanding) though there is a moral issue at stake. The neatest solution therefore would be to announce more or less immediately the setting up of an Inquiry into these Occupational Pension Schemes led by a Judge or an Eminent Person from the City with the remit of finding out 1) How many schemes are in trouble? 2) What would be his/her recommended solutions to pay compensation? This report might take 8-12 months to publish its findings but at least we would then know the scale of the issue and the recommendations for finding compensation. Compensation would then be payable on the same date that the new Insurance Act came into play i.e. 5th April 2005.
Q. Is there cross party support for retrospective compensation?
A. There is much talk; Steve Webb of the Lib Dems has made several appeals for cross party support for a solution without favouring a particular solution; the Tories have not committed themselves to retrospective payments; the Government is keeping its cards close to its chest.
Happy Christmas everyone; well done everyone for what you have done so far BUT the next two months will be critical so we need you to put as much pressure on your local MP as possible.
Keep up the fight.
Derek Wyatt MP
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A group from ASW & Dexion had a meeting with Andrew Smith on 9th September. After the meeting the following common letter was sent to Tony Blair
Dear Mr Blair
Pension Wind-ups
During Prime Minister's Question Time on l2th February you stated, in reply to a question from Kevin Brennan MP about ASW pensions, "We will do our best to help him resolve the particular case that he raises". On 17th September you replied to Jim Dobbin MP in respect of pensions at Lister Yarns stating, "I will look into the issue that my hon Friend raises very carefully".
It was recently announced that a pension insurance scheme will be introduced in 2005 and the inequitable statutory order imposed by the 1995 Pensions Act will be revised. Restrictions have also been placed on solvent employers who wish to close their pension schemes. Welcome as these measures are, they bring no consolation to those who have already lost their pensions despite following - and trusting - government advice.
On Tuesday, 9th September we visited Rt Hon Andrew Smith MP to discuss the wind-up of pensions schemes at ASW and Dexion. During our meeting we handed over proposals from pension expert, Dr Ros Altmann, which show how compensation in respect of our and other similar cases could be paid at minimal, possibly zero, cost to the government.
In view of your re-assurances on 12th February and 17th September, we trust you will instruct the Department of Work and Pensions to adopt these proposals as soon as possible.
We would also request a meeting with you so we can explain our plight in detail.
Yours sincerely
Andrew Parr, John Hayter, John Benson,
Patricia Sargent, Peter Humphrey, Brian Selwood
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We received a fairly quick standard reply saying that Mr. Blair was abroad saving the country and our letter had been passed to the DWP. On 1st December 2003 we received the following reply from pensions minister Malcolm Wicks.
* * * * * * * * * * * * * * *
Letter from Malcolm Wicks
Thank you for your letter of 19 September to Tony Blair about occupational pension schemes, such as ASW and Dexion. The letter has been passed this Department for reply and I apologise for the delay in responding.
In your letter, you refer to proposals provided by Dr Ros Altmann to Andrew Smith during a meeting at this Department in September. You have indicated that Ms Altmann's proposals would mean minimal, possibly zero, costs to Government, whilst providing compensation to members of schemes such as yours. In the light of this, you have asked the Prime Minister to instruct the Department to adopt Ms Altmann's proposals.
The Prime Minister is, of course, aware of the position of ASW and Dexion workers, and would like to emphasise that we are concerned about the situation in which you find yourselves. Ministers do appreciate that the situation must have come as a tremendous blow to you - believing that you were making provision for your retirement, only to find that your expectations will not materialise.
However, I must emphasise that the issue is a sensitive one and there are compelling arguments on both sides. Some, if not all of you, may have attended the meeting on 4 November in which I set out the reasons why the Government needs to consider very seriously whether compensation should be made available in this situation. I appreciate that some compensation estimates may appear relatively small on first sight. But if a package was made available, it would surely need to include anyone whose company becomes insolvent between now and the start of the Pension Protection Fund. Given that the Government has little control over the number of companies that will become insolvent between now and then, the compensation estimates could be significant when they do materialise. And whilst the vast majority of companies who offer occupational pensions do honour their pension commitments, some could leave their pension bill for someone else to collect, which will further increase any compensation costs. We therefore need to give serious thought to whether any compensation package could create perverse incentives for companies.
There is also the issue of whether compensation could result in a subsidy from taxpayers, some of whom could argue that it is unfair for all taxpayers paying for some individuals' private pensions, particularly when some people do not have access to such provision themselves.
I appreciate that each of you is likely to find this response disappointing. But I hope it also clarifies that the cost issue is not always as simple as it may first appear and no Government would sign a blank cheque to an unknown liability. I must therefore continue to stress the message that I know Andrew Smith gave to you during your meeting with him in September - that whilst we are considering all proposals put forward, we do not wish to provide people with false hope that the Government will step in to help members of defined-benefit pension schemes which have already started to wind-up.
Finally, you have requested a meeting with the Prime Minister to discuss your situation further. Unfortunately, diary commitments mean that the Prime Minister is unable to hold such a meeting.
Malcolm Wicks MP
* * * * * * * * * * * * * *
PRESS RELEASE
From
Dr. Ros Altmann
20th November 2003
DWP PENSIONS MATERIAL STILL NOT WARNING OF RISKS. ANOTHER CASE OF PENSION MIS-SELLING, BUT THIS TIME BY THE GOVERNMENT!
Andrew Parr of the Pensions Action Group has been looking at the official pension booklets issued by Government-related agencies and finds that these are still encouraging employees to join their company scheme and failing to alert them to the fact that they could lose their entire pension entitlements, if their employer fails. Although the Government’s June 2003 announcement that there will at last be insurance protection for employer schemes is warmly welcomed, this scheme has not started yet. It is still the case that there is no protection for non-retired members, and no-one is required by law to warn them of this. If Government wants people to put money into pensions and also wants to retain employer defined benefit pension schemes, it must do something to rectify this now.
Every week, more companies are becoming insolvent, with pension funds that will not pay out the promised pensions. More unsuspecting workers are suddenly finding that the retirement income for which they have saved diligently for decades and on which they were relying for their future – has disappeared. In the last few days it was the members of Pervian White Dove in Southend, who will be next?
In fact, some pension funds do not even have enough money to pay out the so-called ‘Guaranteed Minimum Pension’ which is supposed to replace State benefits. This means that people in employer schemes may not even get the minimum level that the State promised them. This is an outrage. How can this be acceptable? European law requires Government protection of pension rights on insolvency, but the UK has broken this law. Successive UK Governments have failed to act. I recommend that we should consider introducing the insurance scheme straight away, from 2004, with employers being asked to contribute an initial amount which can then be adjusted later, when final figures are decided (or perhaps the Government can set aside a contingency sum to fund some of the premium for the first year). Then we could start to restore confidence in our once-great pension system.
The Government is frightened to tell people that occupational schemes are not safe, because it is worried that warning of the reality of the situation will destroy confidence in pensions. I think these concerns are valid, but the answer is not to just carry on pretending all is fine, hoping that not too many people will find out. The answer is to ensure that the system is safe, which means introducing insurance protection as soon as possible, plus agreeing to compensate all those who have lost their pensions since flawed legislative changes were introduced in April 1997. All other financial products must carry a risk warning, yet somehow the pensions industry and Government departments are still conspiring to prevent people from knowing the risks they are taking in their employer’s scheme.
Having made it safer for the future, we must compensate those who have suffered in the past, just as you would expect a financial firm to do if they mis-sold products to people. Government could introduce compensation at minimal cost now, but it needs to act quickly. My proposals entail calling a halt to the winding-up process now, stopping schemes from buying annuities and keeping them running, so that they can use their assets to pay out all pensions as they become due over the next few years. Then, if the money runs out, the government can add funds in future to keep paying the pensions and this can be budgeted for over time. It will not cost that much (under £100million a year). They will have to do this sooner or later, but if they wait, it will cost the taxpayer so much more. Why are they waiting until they lose in Court? This will cost the taxpayer so much more, because once the wind-up is finished there is no money left to finance the compensation.
The attached email highlights how Government material is failing to warn of the risks. Let’s stop having to mis-sell pensions and make them safe instead.
ENDS
About Dr. Ros Altmann:
Ros Altmann is a Governor of the London School of Economics and an independent policy adviser on Pensions, Savings and Retirement issues.
Andrew Parr's e-mail:
You are probably aware that you can work for over forty years, contributing all the time to a pension scheme, and still have no pension when you retire. Something like 50,000 people are affected from well known companies like ASW, Dexion, UEF, Kalamazoo, Blyth & Blyth and many more.
This inequitable state of affairs can occur if your final employer goes into receivership. You can lose every penny; both your contributions and money you have transferred in from previous employers.
Unlike every other financial product there are no risk warnings with occupational pensions. Until just a month ago the National Association of Pension Funds (NAPF) was still selling booklets which said that occupational pensions provided the promise of a guaranteed pension. These booklets were withdrawn just a month ago after I used them in a presentation at a Labour conference fringe meeting in Bournemouth in October.
The NAPF are not alone in giving bad advice. I've just obtained some booklets from the Pension Service (which is part of the Department of Work & Pensions, DWP). Of particular interest is one called "Occupational Pensions Your Guide" ref PM3. Its date is May 2002 (although the books were sent out in November 2003)
I have read the book from cover to cover and there is not a single mention of risk any where in it
There is a section with the heading:
How do I know my money is safe?
It says there is trust law, trust deeds and specific laws protecting your pension, states the fund belongs to the members not the company, states there are laws about the way schemes are run and it is all regulated by OPRA who (and this is a direct quote) "protect your interests". No mention of risk.
There is a section with the heading
What do I need to think about?
It says you should think about how long to retirement, read the guides from your employer (personal comment: these will say promise and guarantee) and think about your career. Nowhere in this section does it say "consider the long term viability of the company because you could lose the lot". I have worked in the steel industry since 1969 and, (because I have always known it is an industry in decline and under threat), I would have got out years ago if I knew my pension could vanish with my employer.
In a section headed
What types of schemes are there?
it says that (direct quote) "for a scheme to be able to contract out of the additional state pension it must pass a test of overall scheme quality. They must offer benefits that are the same as, or better than, the State Second Pension. The scheme actuary [..] must issue a certificate to show that the scheme is meeting this standard". Overall scheme quality? Must offer benefits at least as good as second pension? Certificates? Where is the risk warning in this?
In another booklet "A guide to your pension options" PM1C dated April 2003 (yes 2003) it compares personal and occupational pensions, warns about the risks, charges and unpredictability of stakeholder and personal pensions, but under a heading
Should I join my employer's occupational pension scheme?
it says (direct quote) "Most members [...] will be better off when they retire than they would be if they had not joined it. [...] Generally this means you will get a bigger and better pension than you could get for the same money anywhere else. Occupational pensions are usually a very good deal so if your employer runs a [..] scheme check it out carefully [..] If you are in any doubt (my emphasis) get as much information as you can, for example by reading information from the scheme provider or by talking to a union representative or financial adviser before you decide". This advice again takes you to material with the words "promise" and "guarantee". Financial advisers would, of course, be liable for compensation claims if they advised you not to join an occupational pension scheme. Nowhere in this section on occupational pension schemes is there a word on risk.
There is a section called:
What else do I need to think about?
No mention of risk here either. No suggestion that you should consider if your employer will be around when you retire.
I am amazed that I can get this information and advice from the DWP in November 2003 when the problem of pension wind-ups has been around for at least four years.
Following the Pensions Summit organized by Derek Wyatt MP on November 4th I have written to Pensions Minister Rt Hon Malcolm Wicks MP and Chris Pond MP (who spoke in the house) challenging them to produce any material available to the general public from the DWP which warns of the risk that people were taking with their occupational pensions. As yet I have had no reply.
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Press Release by Dr Ros Altmann, 3rd November 2003
A BOLD MOVE BY ISTC AND AMICUS
I welcome, though with sadness, the move by the ISTC and Amicus trade unions to pursue legal action against the Government, for failing to properly protect pension contributions of members of ASW pension scheme and other UK final salary private sector schemes.
I applaud the unions for having the courage to fight for the pension rights of their members and this clearly demonstrates the value of having a caring union to help workers caught in such a grossly unfair situation.
The problem of wind-ups on insolvency is a terrible indictment of our pension system. Having been involved in pension research and policy for over 20 years, I care about pensions and am deeply concerned at the damaging effect on confidence which this problem is having. I believe that the Government must compensate these victims as soon as possible, in order to try and restore confidence in our private pension system.
Having met so many of the thousands of people whose lives have been devastated by the loss of their 'promised', 'secure' pensions, I find it hard to believe that the Government is taking so long to agree that the mistakes of our pension system must be made good. In 2000, the Government issued a consultation in which it acknowledged that members believed their pensions to be safe, when in fact they were not. At the time, as a consultant to the Treasury, I recommended to the Myners Review that the wholly inadequate Minimum Funding Requirement (MFR) should be replaced by an insurance arrangement, which would guarantee to pay pensions to people whose employer failed, if there were insufficient assets to pay promised pensions. The insurance idea was rejected. Only now that so many schemes have failed, has the Government finally proposed insurance protection, but it will not come into effect until 2005. This leaves many thousands of people still without the pensions which are rightfully theirs.
I am offering my full support to the cause of achieving compensation for the victims of this situation. I offer my time and my expertise to help resolve this matter and would hope that it will not have to get as far as a Courtroom. The taxpayer would then be liable for legal costs and may also be forced to purchase annuities for all those affected. This could cost billions of pounds and would be dreadfully damaging to public finances. I have proposed a scheme which could help to resolve this at minimal cost to the Government. If the Government accepts proposals to run the schemes on, rather than buying annuities, the cost of compensation can be spread over many years and is likely to average less than £100 million a year. I believe the Government will be much better advised to settle this matter now, rather than lose in Court.
Dr. Ros Altmann is a Governor of the London School of Economics and an independent policy adviser on Pensions, Savings and Retirement issues
Press Release from ISTC 3rd November 2003
ASW Unions Launch Pension Legal Action against Government and back Labour MP’s amendments to Pensions Bill
Two trade unions will launch an historic legal action today to reinstate the pensions of thousands of workers who have lost their benefits when their companies went bust.
ISTC the Community Union and manufacturing union Amicus will issue a High Court claim today (Monday 3 November) on behalf of 1,000 pension scheme members of Allied Steel and Wire Ltd (ASW) from Cardiff and Sheerness who lost the bulk of their pensions when the company was declared bankrupt in 2002, leaving two pension funds in deficit.
ISTC and Amicus say that the Government’s failure to properly apply European law, to protect workers pensions when their employers are declared insolvent, means they are liable for the shortfall.
If successful the case, which is being taken to the Court of European Justice, will set a precedent for thousands of other workers who have lost pension benefits when their employers have gone out of business. This will include, the former workers at United Engineering Forgings Ltd based in Ayr, Chesterfield and two other locations which went bust in 2001, leaving its pension fund in deficit.
Commenting, ISTC General Secretary, Michael Leahy, said: "The mistakes and failures go back over twenty years. The Thatcher Government’s made mistakes in the early 1980s. The Major Government failed to correct them when it had the chance in 1995. Labour has started to correct these mistakes, but is not proposing to compensate our members at ASW, who are facing hardship in retirement through no fault of their own.
We hope that the Government will think again and recognise their responsibility to our members at ASW, but if they don’t, then we will fight this case all the way.
The message from today for working people in Britain worried about their pension is clear: it is only by being a member of a union that you can protect your pension."
Amicus Assistant General Secretary, Paul Talbot, said: "ASW workers were told that their final salary scheme was secure but now they’ve lost almost everything. In fact, they’d have been better off putting their money under their beds.
Because the UK government has failed to protect workers pensions, as other EU member states have, they have a moral and financial responsibility to compensate these people now."
ISTC and Amicus will also be supporting Kevin Brennan, Labour MP for Cardiff West, who has pledged to table amendments to the Pensions Bill, expected to be announced in the Queen’s Speech on 26th November, to provide for compensation for his constituents who were members of the ASW pension scheme. The unions will be providing a Bill Team for Mr Brennan to draft appropriate amendments and will be writing to all Labour MPs urging them to support the amendments.
At 2.30 pm on Monday 3rd November, former employees of ASW, together with Michael Leahy, General Secretary of ISTC and Paul Talbot, Assistant General Secretary of Amicus, will serve a letter of intent on Pensions Minister Malcolm Wicks, at Richmond House. You are invited to join us outside from 2.30 pm to 3.30 pm for photo and interview opportunities.
Notes for Editors:
1. ISTC and Amicus believe the Government proposals for a Pensions Protection Fund, announced earlier this month, are a clear signal that current pension provisions for workers whose employers go into receivership are inadequate.
2. The case is likely to be heard in the High Court early in 2004, at which point Council for the unions will request that it be transferred to the European Court for a hearing at the earliest possible date.
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Points for Meeting with Rt Hon Andrew Smith MP 9th September 2003
Number of Affected People
Surprisingly there seems to be no official figure. Some government sources say 1.5 million but that is 1 in 20 of the workforce which jars with reality. We think that particular figure is schemes which have been closed to new members or had their terms altered.
The pensions theft web site has been in existence for over a year and has had good exposure. The number of people known to the site is about 6,000. Given that the site is easy to find with Google and Yahoo and has been publicised in the national press, TV and radio programmes and has several links on the BBC website we now think that we have heard from over 50% of schemes and the true figure is around 10,000. This also aligns with observations in the real world and comments from experts in the pension press. The compensation proposals are based on 20,000 people.
It is worth noting that the web site has not heard of any problems with schemes wound up before 1997. The vast majority of schemes where members have lost their pensions are actually post 2000.
The car insurance analogy
This is a smokescreen. A better analogy is health and safety where you can’t simply say “Sorry there was an accident and you’ve been injured, but we’ve now put guarding in place so that’s the end of it”. We are suffering because the last Tory government introduced bad legislation which this government has now recognized.
The government has acknowledged there is a very real problem
As a result it has introduced the insurance scheme and will revise the statutory order in this session of parliament. This crisis has been caused by bad legislation and government negligence.
You have to draw a line somewhere
The 1995 Pensions Act became effective in 1997.At this time annuity rates were over 10% and the stock market was strong. We know of no people affected before this date. The vast majority of known wind-ups are actually post 2000.
The cost of compensation is enormous
No it isn’t, and it will be spread over many, (possibly more than fifty), years. Calculations handed to Andrew Smith show that the annual cost is of the order of £60 million. Even if you assume 40,000 people, the total cost over this period is much less than Gordon Brown’s stealth tax removes from pension funds in one year.
Human Rights
It is a breach of human rights that money has been taken from our salaries and has been used to pay pensions for other people. Even money transferred in from other schemes has been lost. Why should a 55 year old pensioner have more rights than a 64 year old employee? Everyone should be treated equally.
Nobody warned us of the risk
Every other financial product carries a risk warning. We were lead to believe by the government (publications from FSA, DWP, NAPF, the DWP web-site, tax relief etc.) and our employers (who were allowed to use words like promise and guarantee) that contributing to an occupational scheme was safe.
You had no option but to join a company scheme, it was a condition of employment
And consequently most people thought their contributions were safe.
Until recently the Inland Revenue prevented you belonging to another scheme
Thereby forcing you to put all your eggs in one basket
The 1995 Pensions Act was flawed legislation and mis-sold
Everyone in government has said its aim was to protect pensions (many MPs still believe this). In reality it only protects pensioners, it made things worse for employees yet to retire. It was badly thought out legislation.
Why not follow Frank Field’s suggestion on Unclaimed Assets?
The Irish Government collects Unclaimed Assets, so there are surely no insurmountable problems. Many other EEC governments do the same.
Mirror (Maxwell) Pensions
Retrospective payment was made to the Mirror Group pensioners. Why should your pension be safe if your employer is a crook, but not if your employer is honest but goes into receivership?
Railtrack
Government money was injected when Railtrack went into receivership. Part of this money was used to maintain the Railtrack pension fund through the re-organisation. Why did the government support this company but not others?
Council Tax & Public Service Pensions
A significant part of the large increase in my council tax is being used to plug a hole in the KCC pension fund. Why am I expected to plug public service pension shortfalls when I have lost my own pension? Similar arguments with civil service and (particularly) MPs’ pensions
Confidence
People simply have no faith in pensions (or any other financial product) having suffered from endowments, Equitable Life, with profits schemes, stock market crash, exorbitant management fees, scams etc. etc. There will be a major problem if nobody saves and everyone ends up on benefits. Compensation for us will send a positive message.
The biggest villain is the fall in annuity rates
This hits employees twice, it increases the amount that must be taken out of the fund and reduces the value of what is left. The government did nothing to mitigate the effects that falling annuity rates had on the 1995 Pensions Act.
Early Retirement Issues
Companies were allowed to use early retirement instead of redundancy payments. The attractions of this are obvious: the employees, not the company, paid for redundancies.
In 2000 ASW said it was going to shed people and asked for voluntary early retirement from people over 55 with no docking of pension for early leave, (i.e. you did not get the usual 5% knocked off for each year you leave early). Fred, who is 56, and Joe, who is 62 both apply. Fred is a bit of a pillock who does not work hard but is not bad enough to fire. His application is gladly accepted. Joe is very good at his job, and well respected. His application is refused because he is an asset to the company.
Three years down the line ASW goes bust. Fred’s pension is secure and guaranteed, Joe, on the verge of retirement, now finds he has no pension at all.
Human rights again, why should one group of individuals be treated so differently?
Directors
It is odd how directors often manage to get early retirement in the year before a company goes bust. At ASW two directors (Gerald Sheehan and Bill Bagnall) left at early ages (with allegedly no early leaver deductions) less than a year before the crash, removing huge sums from the ASW fund. An £80k pension costs the fund £80k/0.05 = £1.6 million. Their retirements were investigated by OPAS/OPRA and found to be legal, but moral? We have heard of similar tales from other companies.
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The Labour Party, despite its tradition of looking after the welfare of workers, will be remembered as the party that killed off traditional occupational pension schemes
Andrew Parr
5th September 2003
ISTC calls on Government to compensate ASW employees or face legal action
ISTC - The Community Union has written to Andrew Smith MP, Secretary of State for Work & Pensions, asking him to “see sense” and accept “the moral and legal case” for redress for employees of the former ASW steel company which went into receivership in July of last year with its pension funds insufficiently funded.
Michael Leahy, General Secretary of ISTC – The Community Union, announced that he has written to Mr Smith informing him that the ISTC welcomed the proposed changes to pension law announced recently by Mr Smith. However he said that it was unacceptable that ISTC members at ASW in Cardiff and Sheerness would not be compensated for the previous Conservative Government’s failure to introduce adequate protection for employees’ pensions if their employer went into insolvency, as required under the 1980 European Insolvency Directive.
Mr Leahy said:
“The ISTC has been in continuous dialogue with the Department of Work & Pensions (DWP) since it became apparent in July last year that our members at ASW faced the prospect of receiving only a fraction of the expected pensions that they had saved for, in some cases for as many as 30 years. Most of them lost their jobs as well.
"We lobbied hard for the introduction of an insurance scheme to protect members from losing their pensions should their employer become insolvent – following the experience of our members from ASW – and welcome the establishment of the Pension Protection Fund. But it cannot be right that the law will be changed primarily because of its deficiencies being exposed by the ASW case and yet ISTC members who saved long and hard, as they were advised to do by pension advisors and successive Governments, should be left high and dry with the prospect of hardship in their retirement.
"In December we announced that we had appointed solicitors to advise us whether we could demonstrate that the Conservative Government had failed to adequately implement the 1980 European Insolvency Directive, which required them to introduce by 1983 measures to protect employees from losing their pensions if their employer became insolvent.
“In January we announced that we had appointed David Anderson QC, a specialist in European Union law and Paul Newman, a barrister specialising in pension law, to conduct our case. They agreed to represent us should the research that was being undertaken show that we could bring a case successfully.
“Subsequently it became apparent that ASW needed to be formally wound up in order to trigger the Directive and, on 24th April, our petition to wind up the Company was successful. Our lawyers are now in correspondence with the European Commission seeking disclosure of all relevant documents about the Insolvency Directive.
“Our legal advice is that we have a strong claim against the Government for the failure to implement the Insolvency Directive and to force it to make up the deficits in the pension schemes. In my letter to Mr Smith I have welcomed his acceptance of our argument about the need for an insurance scheme to protect people who have paid into company pension schemes. This is in stark contrast to previous Conservative inaction. I have asked him to see sense and recognise that not only is there a strong moral case for making the changes retrospective to ensure that the Pension Protection Fund covers those who paid into the two ASW pension schemes, but we believe that there is also a compelling legal case.
“The ISTC’s position is clear. We hope that we can reach agreement with the Government so that ISTC members at ASW have their pension entitlements restored and do not have to face hardship in their retirement. If we cannot then we are fully prepared – with the support of Amicus, some of whose members are in a similar situation – to take legal action against the Government on our members behalf.”
ISTC - The Community Union represents members in current and former steel and metal communities. The ISTC is the largest union in the steel and metal industries overall, and represented over 90% of ASW's employees.
The ASW plant in Cardiff formerly employed over 900 people and the ASW plant in Sheerness employed over 300 people prior to being placed in Receivership on 10th July 2002.
On 18th July 2003 The Independent Trustee, Pinsents’, appointed by the Receiver – KPMG – announced that it was winding up the Sheerness and Cardiff pensions schemes. There were 1,100 Members (750 deferred) of the Sheerness fund, and approximately 4,500 Members (2,400 deferred).
Response to Green Paper
The Department of Work & Pensions has published its report on the responses to the Green Paper. A summary is avaliable free of charge from Welfare Reform, Freepost (HA4441), Hayes UB3 1BR, It, can be downloaded as a PDF file from here:
The full report, and other DWP publications, can found at www.dwp.gov.uk/publications
Some thoughts from pensions expert Dr Ros Altman posted on the pensionstheft e-mail group on Saturday 14th June:
I have just returned from the US and am following the interesting emails on the pensionstheft group circuit.
I just want to point out that there are many, many reasons why our pension schemes are in trouble . It is not just one or two factors that has caused this. Responsibility lies with lots of groups.
The Tory Government made a big mistake when it decided to tax pension fund surpluses in the late 1980's. These surpluses should have been allowed to build up, in order to cover schemes for times when markets turned down and/or when more and more people retired and needed to receive pensions from the scheme. Essentially, we have failed to let the surpluses build up and they are just not there when we need them.
After this, successive Tory Governments piled on more and more costs, thinking pension schemes would always be able to afford to pay more out, because they still had big surpluses. Of course, the reason pension funds had the surpluses was because not many people were actually drawing pensions yet (there were far more people contributing than numbers retired) and also because equity returns had been unusually high and scheme assets had grown faster than expected. But the pool of assets was too tempting for Government to resist and they kept wanting to pile more costs onto the schemes, in the process making pensions more and more expensive to provide.
Then the Tories made the mistakes surrounding the 1995 Pensions Act. They forced all employers to guarantee to pay fully index-linked pensions to all members (up to 5%). On top of all the other mandatory requirements (like spouse cover, preservation and revaluation for deferred members etc) this added enormously to the costs of providing pensions. These measures are all, in themselves, excellent for members, but by making them compulsory, there was no 'safety valve' in the system. If investment returns fall, or if the employer's business is in trouble for a couple of years, they could not escape these extra costs.
The 1995 Act also introduced the MFR and regulations requiring more costs to prepare Statements of Investment Principles, pay for compliance and regulatory expenses etc. This again added to the costs of running the schemes - and of course had the terrible effect of leading people to believe that their scheme assets were safe if it was 'fully funded' on the MFR for example. It also introduced the iniquitous priority order rules, which mean people not yet retired can end up losing all their pension!
Finally, of course, this Government removed ACT relief altogether - but this had already been reduced by the Tories, so it is not entirely fair to blame all on Gordon Brown.
So, overall, successive Governments have conspired to make our pensions more and more expensive.
Then we come to the role of employers. They too could not resist getting their hands on the tempting pool of assets sitting in the pension funds. They used these to hide the costs of industrial restructuring in the 1980's and 1990's, but giving people generous early retirement benefits (paid for by the pension scheme). This also led others to expect to be able to retire early, which, of course, means that the pension must be paid for longer and longer, as life expectancy has continued to rise.
Employers also took contribution holidays. This is a real problem, because they should have kept paying in to build up assets to cover for times like now, when markets and investments go wrong, but more and more pensions still need to be paid. They relied on actuarial assumptions that showed equity returns would deliver strong growth consistently over time and, therefore, make the pension promises affordable.
Which brings us to the role of the actuaries and trustees. Actuaries' forecasts allowed schemes to take contribution holidays and trustees trusted their actuarial advisers to give them reliable forecasts of what contribution rates should be recommended to employers. If the actuaries said the employer could take a contribution holiday and still afford to pay the promised pensions, the trustees didn't question this. They did not think to say to the actuaries, how can it be that we have more and more people retiring, the costs of providing pensions are rising, equity returns have been very strong and yet we think this can just be relied on to carry on into the foreseeable future. Equities should not have been relied on to keep providing strong returns. As markets rose and schemes became more mature, the equity component should have been reduced, but instead it was actually increased!
In addition, people are living much longer and expecting to retire earlier and earlier. Pensions were never meant to last for 30 or 40 years. Yet the pensions industry fooled itself into thinking that it could provide really good pensions with not very high contributions.
Finally, of course, interest rates have fallen to very low levels and this has meant the costs of providing pensions - especially via annuities - has rocketed.
All these factors have come together to leave us in the mess we are in today. You cannot just blame the Government,or the employers, or the actuaries, or the trustees, or the investment managers. The whole industry must share the blame and it is time to get real. The system is not working and must be sorted out, to help provide decent pensions for people in future.
We have been deluding ourselves perhaps, to truly think that companies can afford these kinds of open-ended liabilities for ever. Especially with all the extra costs we have piled on over the years, without keeping aside enough money to pay for them.
I think this week has been an excellent first step along the road to getting a better and safer pension system in place. If we are moving away from defined benefit and final salary schemes - which seems inevitable - then we must make sure we spend time to structure alternative money purchase arrangements properly, help people to think about gradually retiring, rather than suddenly stopping work in their 50's and protecting people whose employers have promised to pay them a particular level of pension.
Those who lost their pensions with no warning, while thinking they were properly protected by the law, should be compensated and we should make sure this does not happen to anyone else in future. We are closer to this today than we were last week and that, for me, is good news!
DWP Note of Green Paper Member Protection consultation event held 13th February 2003
PROTECTION IN THE CASE OF WIND UP
Fairer sharing of assets – rebalancing the priorities between pensioners and non-pensioners
A lot of support for changes to the priority order that would share the pain between all members, giving them equal rights.
Support for changes to be brought in as soon as possible.
Support for stopping the indexing of pensions in payment if other members have not received their pensions. Prediction that ASW members may have received 90-95% of their pensions if the fund had been shared fairly amongst members, with no indexation to pensions.
Creating different categories of members on wind up would add to complexity and cost.
There is the problem of age discrimination if you create different categories based on age.
The present system of having pensions in payment at the top of the priority order may encourage people to retire early, but no support for changing the position of pensioners.
Amending the priority order of creditors
Some support for a change to be made about where the pension scheme lies in the list of creditors, but acknowledgement that this might be of little help if there are only a few assets.
Concern that a change to the creditor list could make it more difficult for companies with final salary schemes to borrow money, but some acknowledgement that FRS17 does this anyway.
Insolvent Employers - Insurance or a centralised "clearing house" arrangement
There was support for a form of insurance.
There was some support for the clearing house option.
Some felt that insurance would provide members with confidence about what they would receive as a pension, and that it would guarantee some security.
There were suggestions about how to pay for this insurance - part of the tax relief that pension contributions attract could be used to provide an insurance scheme; - funds could pay a levy for the cover, and some schemes could be allowed to opt out of paying the levy, if they could satisfy the regulator that they had their own insurance cover; - contributions to a central discontinuance fund could be from employers, employees or a combination of both.
Some thought scheme members would be willing to trade growth in their fund for additional security, for example, the representative for UEF said that the UEF workers would have been happy to pay extra to cover the pension debt.
General view that members of money purchase schemes would be unlikely to want to pay for final salary schemes. And the state should not have to fund such a scheme, as many taxpayers do not have the advantage of a company pension scheme.
The insurance industry was wary about providing some form of insurance because of: - problems with the practicality of providing private insurance for a public liability; - underwriting the risk likely to be a problem, may not be feasible and may be costly, particularly if there is no underwriting of the risk by Government; - moral risk, with employers deliberately underfunding their schemes; - and additional costs are imposed on schemes employers may not provide final salary schemes to the extent that they do presently.
Improved Compensation Arrangements
Some views that compensation should be paid to members who have lost their full pension entitlements, irrespective of whether the loss was as a consequence of fraud or theft.
Solvent Employers
View that action is needed on solvent employers that decide to wind up their schemes.
View that employers should not be able to walk away from providing the pension benefits they promised, but also views that schemes have been set up voluntarily and on the basis that employers could walk away from them at any time.
Some felt solvent employers who wind up their pension schemes should have to guarantee the pension benefits to the members and provide a reasonable alternative pension option.
Retrospection
Retrospection is difficult, but can be right.
When companies set up schemes they understood that they could walk away from those schemes at any time. If regulations set a date in the future when changes were to be implemented it would mean that employers would wind up schemes in that time gap.
Any change to the priority order should not be retrospective in its application.
New regulations could be effective from now, and apply to all schemes currently in wind up.
OTHER AREAS COVERED
The role of the Regulator
Strong views that the limits that are currently placed on Opra are frustrating, and that there should be more protection and a more proactive regulator, perhaps modelled on the FSA. Also that there should be a mixture of good regulation backed up by a good regulator.
Consultation with employees
Views that as a minimum, employers should consult their employees when making changes to their pension schemes, but that the requirement should be for employers to negotiate with their employees about pension changes, rather than just consult them. They should have to inform employees when they want to take a contribution holiday.
Independent Trustees
Views that the costs charged by the independent trustee could be met by the company or receiver rather than the pension scheme, and costs that are charged in wind up should have to satisfy a reasonableness test.
To reduce the costs of winding up schemes, which can be high, you could introduce a fast track version of wind up.
A number of individuals said they had anecdotal evidence that professional sometimes charge excessive fees during the winding up process. Some consensus that the regulator might play a more pro-active role, including ensuring independent trustees fulfil their duty to look after the interests of scheme members.
Funding of Schemes
Agreement that a fundamental issue is whether there are adequate funds in the pension scheme. Mixed views on whether the proposed scheme specific funding requirement would be better or worse than the minimum funding requirement (MFR).
Information provided to Members
Strong views that presently, workers are promised a level of pension benefit, but do not know about the level of risk possible.
Some thought better information should be provided for members about what happens should the scheme wind up, but others argue against this, as there are only low numbers of schemes that wind up and that this information would frighten people.
Financial advice should not be about providing financial products, it should be more about providing advice to people when they need to make financial decisions.
Pension Surpluses
Employers should not be allowed to take money out of schemes, as they used to. Changes should be made to the rules on surplus. The volatility of the equity markets means that surplus limits should not be as restrictive as they are presently.
Consumer confidence
Confidence is key for scheme members. OPAS have been receiving phone calls from people questioning the security of final salary schemes.
Programme of work
The industry and employers need a lead in time to make sure they get things right. There are a lot of changes to pensions proposed in the Green Paper.
Employers need to have time to implement changes and need certainty about the timing.
The changes to winding up are needed quicker than other proposed changes.
Other comments
Company trustees in practice have more power than member-nominated trustees.
The TUPE rules should be strengthened.
The Green Paper proposals spread the pain rather than remedying the cause.
It is unclear how you improve the pension security for members without placing an extra burden on employers.
Companies that have final salary schemes can have problems borrowing money, as some lenders are not happy to lend to them.
More regulation will push companies into providing money purchase schemes.
Consideration should be given to directors/trustees use of exoneration clauses and indemnity insurance.
Need to have simplicity. This encourages members to join the pension scheme. If you tell members that the pension scheme is a secured creditor, this is clear and members can understand it.
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NOTES BY Keith Plowman, ASW SHEERNESS PENSIONS ACTION GROUP
John Hayter and myself attended a consultation meeting on Member Protection chaired by Ian McCartney on Thursday, 13th February. The seminar was arranged to discuss the recent government Green Paper 'Simplicity, security and choice: Working and saving for retirement'. The seminar was attended by about 50 people from Government, DWP, FSA, OPRA, Insurance companies together with representatives from interests having already suffering through wind up. (ISTC, ASW Sheerness and Cardiff, Ravenhead Glass and UEF)
The Government has made 'a clear commitment to improve member protection, so as to ensure they can have confidence that the pension they are promised will be delivered.
The three key proposals set out in the paper are:
1. A new pensions regulator whose objectives are focused on protecting the benefits of scheme members:
2. steps to give members greater confidence that when schemes are wound up, they will get the benefits they were promised; and
3. ensured that members are consulted about changes to their pension scheme.
We were asked to give our views on:
* proposal for a new kind of regulator
* the wind-up priority order
* the place of pension schemes in the priority order of creditors
* clearing house or insurance in the case of wind-up
* protecting members whose solvent employer winds up
* consulting members before making pension changes
We circulated a written response on the points raised and brought compensation back to the top of the agenda.
Our replies are as follows:
Thank you for inviting ASW representatives to this consultation meeting.
We appreciate that all participants will not have sufficient time during the debate to reply on each of the points raised, so we have presented this written response on behalf of our group.
* Compensation
The main objective of the ASW Sheerness and Cardiff Action Groups is that the promised level of pension payable to deferred members of the two ASW final salary schemes at the date of winding up in receivership on 18th July 2002 is restored in FULL. The Green Paper does not offer any proposals for compensation resulting from wind up, nor does it offer any constructive remedy for meeting the full promised benefits of any occupational pension scheme in future, other than to spread the loss over a wider group, to suggest working for longer, and to propose higher levels of contributions. The result of these suggestions will be a total loss of confidence in occupational pensions by the populace as a whole, unless a remedy is found for compensation of promised benefits for all people already suffering this totally immoral situation.
After the Maxwell debacle, we were assured that our promised pensions had been safeguarded when, patently, they are not! We are pleased to read the commitment of the Government 'to improve member protection, so as to ensure they can have confidence that the pension they are promised will be delivered. How does the Government intend to compensate occupational pension scheme members, such as ASW scheme members, already affected by the shortfall in existing laws on protection?
Taking your other points in turn:
* More pro-active regulator (p62 and 63)
We agree that the regulation of occupational pension schemes should be more pro-active. The cost of this regulation should not be direct to individual schemes. Any costs of wind-up should be charged to the company, or to the receiver, not to the scheme itself. Employees should not be further penalised when their employment income is already at risk.
* Pension Scheme position in priority order (page 63 and 64)
The priority order should be amended so that all members have equal rights
in wind up. However, this is not a good remedy, since pensioners in payment would then suffer hardship. Members should not be exposed to a position where their promised benefits are jeopardised in the first place.
* Pension Scheme position in creditors priority order (page 64)
The occupational pension scheme (and employment costs) should be a first priority secured debt in wind -up. If these costs had to be covered first, the financial institutions would think harder and longer before withdrawing their continuing support . The financiers know and cover the risks, the employees should not be asked to bear the biggest losses.
*Clearing house or insurance proposal (page 65 and 66)
We are strongly in favour of insurance. The cost should be met from contributions at a flat rate and underwritten by the government. Members pay their taxes and NI contributions without question to support state and state worker schemes, so it is in the state interest to acknowledge this support.
*Protection in wind-up by solvent employers (page 66 and 67)
Solvent employers should bear any costs of wind-up, they should cover and insure accrued benefits at that time, and should provide acceptable alternative arrangements for displaced members.
*Consultation before changes (page 69)
Before any changes to schemes, then employee representatives should be consulted. If agreement cannot be reached, the case for change should be decided by the independent regulator.
*TUPE
Our strong belief is that TUPE needs strengthening. The rules appear to be there to be 'got around' rather than to offer any protection in a company wind up situation. For instance, it is easier to ditch any occupational pension scheme if the company goes into receivership (even if the scheme is in a healthy state financially), simply because this makes the company easier to sell.
Similarly, the full contracted redundancy payments and ongoing salary costs can be downgraded by laying off the workforce for a 'suitable' period before re-employment.
Keith Plowman
Chairman of Sheerness Pension Action Group
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COMMENTS ON THE DAY
The underlying thread of the debate was that pension schemes are regarded as unsafe and that this needs to be corrected quickly. Everyone agreed that confidence was the key.
Insurance or a Central fund were generally supported, and there was general agreement that there should be some retrospection if the confidence was to be restored. The lawyers and insurers felt that wind-up should be completed much more quickly.
Consensus was that we did not need another pensions regulator -just clearer and stronger laws. There was some admission that OPRA would remain as the regulator and that their remit would be strengthened through law.
There was agreement that workers needed to be treated more fairly and receive a higher level of compensation depending on service than is the case with the current priority order
There was some degree of panic at John Hayter's suggestion that the government, NAPF and OPRA, should state clearly on their websites that occupational pension schemes are unsafe, although everyone acknowledged that people had not been informed clearly of the risks.
Overall, we took a lion's share of the debate through ASW Sheerness and Cardiff.
There were several encouraging features of the day to report.
1. The subject of retrospective compensation or inclusion in law changes
was raised by the Minister himself, and greeted positively.
2. A planted question on compensation and formation of a central discontinuance fund, in particular with respect to the ASW Sheerness and Cardiff schemes, was raised in the PM's question time on the previous day by Kevin Brennan MP for Cardiff West. Tony Blair responded positively concerning compensation for ASW members, claiming that the Government would do their best to help resolve our case. An early-day motion has been lodged on this matter.
3. A meeting with Dr Ros Altmann following the debate was positive in that she felt that the ISTC/Amicus challenge on Article 8 would succeed. She also suggested other areas that we might pursue, such as negligence by theFSA, and the Action Group will work on these.
4. We met with Derek Wyatt and Frank Field on the pension campaign, and their feedback was positive. They are trying to get backing for an all party debate on pensions.
5. We heard from Ian McCartney that a deal has been done with public sector unions concerning transfer of assets from one scheme to another, and they appear anxious to broker a similar deal in the private sector.
We have pencilled in the Labour Party conference in October as a definite focus.
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Council Directive 8019871EEC on the approximation of the laws of the Member States relating to the protection of employees in the event of the insolvency of their employer (Insolvency Directive)
The above Directive was adopted in 1980. It was a partial harmonisation measure where each Member State was required to set up a "guarantee institution" (the National Insurance Fund in the UK) to meet certain debts owed to former employees of insolvent employers. The UK had already had such provisions in place under the provisions of the Employment Protection (Consolidation) Act 1978, and no substantive amendment was judged necessary in order to implement the Directive. The provisions are now contained in the Employment Rights Act 1996 and the Pensions Scheme Act 1993.
The Government meets its obligations under Article 8 of the Insolvency Directive. For example, the Pension Schemes Act 1993 (which consolidated provisions originally in the Employment Protection (Consolidation) Act 1978) provides that certain unpaid pension scheme contributions can be claimed from the National Insurance Fund, through the Redundancy Payments Service, if an employer becomes insolvent. If a claim is successful funds are paid to the trustees of the scheme being wound up. In addition, the Pensions Act 1995 requires salary-related schemes to meet the Minimum Funding Requirement, and provides for a statutory priority order for the distribution of a scheme's assets if a scheme that is required to meet the MFR winds up.
Under Article 8, Member States shall ensure that the necessary measures are taken to protect the interests of employees and persons having already left the employer's undertaking or business at the date of the onset of the employer's insolvency in respect of rights conferring on the immediate or prospective entitlement to old-age benefits, including survivors' benefits, under supplementary company or inter-company pension schemes outside the national statutory social security scheme.
Under Article 4 Member States have the option to limit the liability of guarantee institutions in order to avoid payments going beyond the social objective of the Directive. Where these options are exercised, Member States are required to inform the Commission of the methods used to set the ceilings.
Under the Employment Rights Act 1996 and the Pensions Scheme Act 1993, the Redundancy Payments Service (RPS), on behalf of the Secretary of State for Trade and Industry, makes insolvency payments from the National Insurance Fund (NIF) to qualifying former employees. It then becomes a creditor in the insolvency proceedings in their stead. The amounts payable from the NIF are subject to statutory upper limits. Any debts to former employees that cannot be met under the st |
