Open letter handed in to Number 10 Downing Street during the PAG protest march held on Sunday 30th October 2005

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.
• here 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.

• 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.

Reply to Number 10 letter (2)

During the Halloween protest (see News page) a letter (see above) 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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