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CORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1081-ii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

Public administration SELECT committee

 

 

OMBUDSMAN ISSUES: pensions

 

 

Thursday 22 June 2006

DR ROS ALTMANN, MR BOB DUNCAN and MR ANDREW PARR

Evidence heard in Public Questions 76 - 126

 

 

USE OF THE TRANSCRIPT

1.

This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.

 

2.

The transcript is an approved formal record of these proceedings. It will be printed in due course.

 

 


Oral Evidence

Taken before the Public Administration Select Committee

on Thursday 22 June 2006

Members present

Dr Tony Wright, in the Chair

Kelvin Hopkins

Julie Morgan

Mr Prentice

Paul Rowen

Jenny Willott

________________

 

Examination of Witnesses

 

Witnesses: Dr Ros Altmann, Mr Bob Duncan and Mr Andrew Parr, gave evidence.

Q76 Chairman: It is a great pleasure to welcome Dr Ros Altmann, Bob Duncan and Andrew Parr, the latter two who have been caught up directly, personally, in the occupational pension failures. We are very glad to have you along, although we are not glad about the reasons. You are here because you are helping us to respond to the Ombudsman's report and the Government's response to the Ombudsman's report. You have given us already some very useful information. Ros, would you like to say anything by way of a short introduction?

Dr Altmann: Thank you, Chairman. Effectively, we are here today to explore how the Government can dispute the findings of maladministration by the Ombudsman. The evidence is clear. Firstly, the Government misled the public with its official information, information which it chose to issue in order to encourage people to join and which left out mention of the huge risk that the Government itself created by policy changes introduced from 1997 which have caused over 75,000 of your constituents - we know of at least 200 MPs who have constituents affected, and that is just the ones we know - to be stripped of their pension. Secondly, in its oversight and changes to the funding regime for pensions, even for the guaranteed minimum pension alternative to the State Pension, the Government failed to consider the security of workers pensions if their scheme were to wind up. They just ignored the risks it had created to members' pensions on wind-up. I have to try to understand the denial of the DWP on the clear evidence that it failed to meet its own guidelines and failed to stick to the assurances it has given to Parliament and this Committee that in future its implementation would be accurate, reliable and comprehensive. I think a number of the things we have heard this morning may partly go some way to helping us understand what is behind the Government's denial. I have, as you say, two people here who were misled by Government information, who could have done something different. The belief the Government has expressed, that nobody read its material; even if they did they should not have believed what they read; and even if they did they would never have done anything to protect themselves anyway, suggests to me that we need to hear from people who can demonstrate that that is just not a correct assumption.

Q77 Chairman: Thank you. I would like to ask you, Mr Duncan and Mr Parr, to tell us your own experience of the length of time you have been paying into your pension scheme and when and how you discovered you were not going to get the pension you thought you were going to get.

Mr Duncan: I am Bob Duncan. I worked in the British United Shoe Machinery Company in Leicester for 36 years. It went into receivership in October 2000. When I first started there, there was a non-contributory pension scheme. The unions fought for it and in 1976 we went into a company paying-in scheme. I also started saving voluntary contributions. I paid in for nearly 30 years. When I got made redundant and the firm went into receivership, my pension fund, the day I finished, stood at £8,000 for the year, plus my AVCs which were about £25,000. I have been told now that I have completely lost the AVCs at the moment. They have gone. The State Pension, we have been contracted out and paying into a company pension scheme, and at the moment I do not believe I am going to get the full State Pension. I have been told by the independent trustees at the moment that we will be lucky to get seven per cent of the £8,000. It still has not wound up. It was October 2000 when the company went bust and we are in 2006 now and we still have not wound the scheme up. I believe that I read all the material from the Government over the years. I was a union man. I did recommend to people that the company pension scheme was a good scheme to be in because all the Government material I had read said it was a safe scheme. After the Maxwell report and everybody seeing the MFR, the minimum funding level, if that was all right we believed our scheme was all right. We just believed that. It has worked out that it is not and I feel like I have been really, really misled. The Government have put all these papers out, and, if I could not believe what the Government said, who do I believe?

Q78 Chairman: You must feel that you misled other people because ---

Mr Duncan: I did mislead other people. I was the union man. I had all these pamphlets. If anybody went to the doctors, anybody went to social security, they would bring pamphlets back. If anybody went anywhere, there were always pamphlets on the union desk. I certainly misled apprentices when they started, because you get young lads, 15, 16, starting work, they go and they talk to the management and the management say "Join the pension," it is the last thing they want to do, is join the pension. They used to come down on the shop floor: "Where is the union man?" and talk to the union man. I used to recommend that they go back up and sign into the company pension because I had read all the material and all the material told me that company pensions were safe and guaranteed. I mean, I do not know what the definition of safe is and I do not know what the definition of guaranteed is, but it is certainly different from what the Government thinks. Okay, I may be a thick Geordie, but I am not a stupid one. I must have been thick to believe what the Government told us.

Q79 Chairman: Mr Parr, do you want to add your experience.

Mr Parr: Yes. I joined a company called Sheerness Steel, a steelworks on the Isle of Sheppey in Kent, in 1982. When I joined, joining a pension was a condition of the employment. If I wanted the job, I had to join the company pension scheme - and it was a very good pension scheme. All went well until the late 1990s, when the steelworks was put up for sale by its Canadian owners and was bought by a company called Allied Steel and Wire (ASW) in Cardiff. There were many issues about the purchase of the company that caused us great concern. The steelworks at Sheerness was profitable - very unusual in the steel industry - whereas Cardiff had not made any money for about eight years. At the time, I was on something called the Staff Consultative Committee (SCC). Sheerness was a non-union steelworks. It was a single status company. The SCC was the line of communication between the workforce and the management. When ASW bought Sheerness, the Sheerness pension fund was in considerable surplus. The management had not made any pensions into it because it was over-funded, and even in two years in the 1990s the workforce got their contributions back. The retirement age had come down from 65 to 63 and then to 62, and the personnel director had said that the aim of the company was to get the retirement age down to 60 in the very near future. We believed that, at the time that ASW took us over, the pension fund was something like 110 per cent funded to MFR, although at the time everyone did not really know what MFR meant. We did know that the pension fund at Cardiff was very different. It had a retirement age of 65 and also it was under-funded. One of the very first things that the management of ASW did when they acquired the Sheerness site was to talk about merging the two pension funds and, because of the very significant differences in the terms and conditions of the pension fund - the different retirement age, a different level of funding - the people at Sheerness were very uncertain and very apprehensive of this proposed merger. I have a little bit of a reputation for being somebody who likes digging in for research, and, at the time, I went and got as much material as I could about pensions. I went to the FSA website and got a list of what they had. I downloaded a lot of PDF files from them. I was in touch with the DWP department that you can get booklets from, and I had those sent to me; I did research on material from the NAPF; and I generally went through everything I could find about pensions to find out what the legal position was. In all of that there was nothing that suggested there was any risk. I must emphasise that the steel industry is a very, very risky business for its employees. In 1969, when I first started working in steel, this country was producing 30 million tonnes of steel a year. It is now producing less than ten million tonnes of steel a year. There are steelworks that have closed all over the country and now we are really down to a little more than the basic steelworks provided by Corus. I have always known, working in the steel industry, that my job is at risk, but it is an industry I enjoy working in and it is an industry that is very interesting. When ASW took us over, I felt that the risk to my job had gone up because of ASW's previous performance, but there was nothing in any of the material that I had downloaded and acquired from DWP that suggested my pension was anything other than safe. The DWP booklets have a section in the middle of them: "How do I know my money is safe?" It mentions all the laws that protect pensions. Nowhere in that does it say: "Your pension is only as good as your employer." The ironic thing is that one of the leaflets I have here from the FSA has as its title, on the front page, "Asking the right questions" and the one most important question of all did not appear in here, which is "How safe is my pension?" When ASW went into receivership in June 2002, at first I told a lot of my colleagues that we were okay for the pension because our scheme was 104 per cent funded. I assumed that, if a scheme was 104 per cent funded, there was enough money in it to pay out the liabilities. I told people our pensions were safe because of what I had read. About two or three days later the employee nominated trustees were called down to Cardiff. They met with the independent trustee and came back with the news that we would probably get something like 40 per cent of our pension and that would be un-indexed, and that was also if they managed to do a good deal on the wind-up. But the whole issue of what MFR means is something that has caused great confusion to lots of people. I have here a report that my MP Derek Wyatt sent to me. It is a research paper from the House of Commons and it is dated 2004 in relationship to the Pensions Act. It is called Pensions Bill, Bill 57, 2003-2004. The author of this Bill, from the general statistics sections, says "The minimum funding requirement was designed to protect accrued pension rights by ensuring schemes have sufficient assets to meet their liabilities should they be wound up." If a researcher with access to all the information that is available in the House of Commons Library can make a fundamental mistake like that, what chance do employees of companies have?

Q80 Chairman: Thank you for that. What has happened to you is devastating. I think most of us here have constituents who have been affected in ways that you describe. You realise that we want to ask you some questions now about some of the issues that bear on this. Just listening to what you have just said, if these leaflets to which you refer had had risk warnings about wind-up all over them, how would it have affected what you did?

Mr Parr: In my personal case, I started becoming very interested in my pension when I got to the age of about 55, because, if you are in a pension scheme and you are in your fifties, every year that you are in increases your pension. But, because of my knowledge of how the steel industry works and what the state of the steel industry's finance was, had I known that there was any risk whatsoever, I probably would have gone for early retirement. I have a hobby - or I had a hobby because I have not done it for four years, since ASW closed. I write technical books, from which I get a small income. It has always been my intention that when I did retire I would try to write more books to get more royalties coming in. Had I known what the position was, I would have pushed for early retirement and gone into my second career of writing technical books. Through the SCC, we would have pushed the company to have increased the level of funding of our pension fund, but, because our pension fund was 100 per cent funded and we did not know that MFR did not mean your pension was guaranteed, the SCC did nothing about the funding level. We would have pushed for more money to have been put into the pension fund.

Q81 Chairman: So there would have been action that you at least would have thought about taking.

Mr Parr: Yes.

Q82 Chairman: Mr Duncan?

Mr Duncan: When the BU went into liquidation, I was 58. Whether I would have went for early retirement, I do not know, but, what you are saying: "If the Government leaflets had said that the pensions were not safe ..." then certainly - as I say, I am not a stupid Geordie - I would have gone and found out what I could have done. I knew for years that the shoe industry was going down, because everything was shifting to the Far East anyway, so we knew that the company was a little bit on the sticky side but that was for years and years. If the Government leaflets I had read had said there was a massive, big risk that if the company did go bust then I would lose my pension, then of course I would have been away to see somebody else - as a private pension, or even just putting money in the bank - and certainly not putting anything into an AVC. I mean, that has just been the biggest complete waste of time I have ever done in my life, is putting money in the AVC. I might as well just have put it in the building society.

Q83 Chairman: Dr Altmann, the Ombudsman's report does not say that Government maladministration is fully responsible for what has happened to Mr Duncan and Mr Parr. You clearly believe that policy decisions that the Government took had a bearing on the whole issue - and of course, there are external factors as well. But it is not for the Ombudsman to say whether policies that the Government adopted were right or wrong, or even to say whether policies that the Government adopted were just or unjust. That is what governments can do. The Ombudsman has found, on the grounds of maladministration, which is her territory, that there is a component of maladministration in what has happened. Given that, given the fact we are talking about a component of responsibility that comes from maladministration, and given the fact that Christine Farnish from the National Association of Pension Funds just now was saying that we have to accept there is risk in all this, what does that lead to in terms of thinking about who should seek to pick up the bill and make redress for what has happened?

Dr Altmann: The Ombudsman's report says that the maladministration that it found, as I outlined, which is clear, was wholly responsible for all the non-financial injustices that these people have suffered. That is one aspect which the Government has failed to address at all in its response. The effect on their health, the sense of shock and outrage, the fact that their lives have been blighted by this for years is directly caused by maladministration. The bit that the Ombudsman says was not entirely caused by the maladministration itself is the financial loss. However, as you say, the policy context in which those losses occurred, which were directly in the control of Government, were also responsible for the losses. If, as is clearly the case, nothing in life is really risk free, why did the Government not explain that to the public? There seems to be this overriding assumption that somehow the general public is not capable of making its own decisions, therefore: "Let us deny them the information they need, because, even if we gave it to them, they would not do the right thing in any case." I find, on their behalf, that that is rather an insult. Maybe some people would not do anything, but there are thousands, tens of thousands, hundreds of thousands of people or more, who, if they have the right information, would be able to make an informed choice, and that is what has been denied to these people. The other responsible parties, if you like, in this whole situation are partly, perhaps, employers - I think the Government is suggesting, but they were complying with the law; partly investment returns, which were disappointing; partly annuity rates, which rose. The Government is clearly not responsible for those, but it is responsible for clearly setting out in its leaflets that it was only personal pensions and money purchase pensions that carried the risk of an investment nature or carried the risk of annuities. In its leaflets about explaining pensions to the public, it contrasts final salary pension, where the pension is determined by the number of years that you have worked and by the terms of your scheme which give you a promise of a particular pension on which you can rely, with the situation of a money purchase pension, like a personal pension, where you are at the mercy of investment returns and the mercy of annuity rates. That was not true, because of the situation that the Government created on wind-up. When a scheme winds up, the amount of pension that members get does depend crucially on the amount of money in the scheme and on the annuity rates and the cost of those annuities. Because the Government put in this priority order - which, again, removes discretion from trustees, so that the schemes are not private schemes, they are taken over by the state - the trustees were unable to divide the assets fairly. So you have people like these, who have ended up with virtually nothing, and other members of the scheme who are fully protected. None of that was explained, so that nobody had the opportunity to save in another form and protect their future retirement income, or perhaps encourage their spouses to take out a pension - as Bob says, not to put all your eggs in one basket by putting AVCs, additional contributions, into the scheme as well, but at least to diversify. But the Inland Revenue would not let you have any other pension if you were in a company scheme, so you could not diversify. I see the Government's responsibility stretching throughout this entire episode.

Q84 Chairman: You heard Lord Turner say just now that the Government should never use the language of "guarantee" in relation to private schemes. Your essential charge is that it did use a language during a period - particularly in relation to a category of schemes which are thought to be more secure than others - which did make people think that they had an assurance about the integrity of their pension should something have happened and did not talk about the risk around wind-up. That is your essential charge, is it not?

Dr Altmann: Yes. The Government misled members of the schemes, denied them an informed choice and also the Government itself created those risks.

Q85 Chairman: It is serious for the individuals involved, absolutely devastating and serious. How serious is it for the way we do pensions policy that the Government should not accept what is being said to it on this?

Dr Altmann: I feel so strongly that, if the Government is unable to understand how badly it has misled people and caused such significant injustice, it is in the public interest, going forward, to help the Government to understand it in order to avoid them making the same mistakes and causing further injustices in the future, by repeating the same errors in respect of pensions, for example, or any other area. Certainly, in financial matters it has become clear that the Government's understanding or willingness to impart information about pensions is coloured by a view of the readers which is not a realistic view. Members of the public trust and rely on government information. If they do not receive the correct picture, there will be consequences for them which officials need to understand and ministers need to be aware of. As Lord Turner says, if there are risks, we need to tell people what the risks are so that they can make up their own minds.

Mr Parr: May I make a comment on that point as a follow up. If you are a member of the public, the sort of place you could get information from about pensions was the NAPF. With all respects to Christine Farnish, the NAPF is an employers' organisation, it is not necessarily an employees' organisation. The booklets say: "Consult your scheme provider" who is your company. If you do not trust the company - as we did not trust the company of ASW when they took over the Sheerness steelworks - you do not wholly trust what the company says. You get the media: you can read in the media, but the media have their own axes to grind. The one organisation you should be able to trust is the Government, because the Government is impartial and the Government is not trying to promote anything which everybody else may be.

Q86 Chairman: Although we heard also from Lord Turner that the Government, in a sense, over the years, had been trying to promote something which possibly affected the way in which these things were dealt with.

Mr Parr: But we were not aware of that.

Chairman: No, of course not. Let me bring some colleagues in.

Q87 Jenny Willott: Could I start with a couple of questions about background. Mr Duncan, you said you were getting seven pence in the pound for your pension and Mr Parr you said you were getting 40 pence.

Mr Parr: Estimated.

Q88 Jenny Willott: Okay. What is the range over all of the people who have lost pension savings? Is seven per cent at the lowest end and 40 per cent at about the highest? Or does it go much higher than that? I know there are about 40,000 people who have lost not very much - who have lost £10 a week - but for the other 85,000.

Mr Duncan: The company I worked for had an ageing workforce because they did not take apprentices on for quite a number of years. When the scheme went into liquidation in 2000, we were told we were going to get 60 per cent, and it has just gone down. As the lawyers and the accountants take the money out, there is less and less money in the pension scheme. They bought the annuities for the pensioners who were already retired and what is left at the moment is going to be seven per cent. That was the last thing I was told. It could be five per cent next week. It could be nought per cent in a couple of months' time.

Dr Altmann: In general I think there is a situation where, once the annuities are purchased, the rates on the bulk annuity market have worsened so dramatically that the vast majority of scheme members now are getting zero occupational pension and they are finding that they are getting significantly reduced guaranteed minimum pensions from the state. In fact, Bob's seven per cent means that all his years of contributions to the scheme have delivered nothing, and he is also not even getting what he would have got if he had stayed in the SERPS pension scheme, never put a penny of his money into the BUSM scheme, and just been relying on SERPS.

Q89 Jenny Willott: How many of the people who were involved have lost their State Pension rights as well, or some of them?

Dr Altmann: The majority of them, so they are getting zero occupational pension.

Q90 Jenny Willott: And they are getting less on the State Pension than they would have done.

Dr Altmann: Exactly. It will differ from member to member. It depends on how much service, what salary you were on and, therefore, how much of your pension was comprised of the GMP versus your occupation pension rights. That will be shown on each person's statement. I gave an example in the papers of Perivan Pension scheme and Mr Carpenter because I have seen his statement. There are lots of others. He has a neighbour down the road, Geoff Kattie, who is in the same position. Every member of that scheme who was not already drawing a pension will get far less than they would have done if they had never put any money into it.

Mr Parr: ASW, being 104 per cent funded, is only managing to produce a pension of around about 40 per cent, and we are one of the better ones.

Q91 Jenny Willott: Moving on to the Ombudsman's findings and what she recommended, the Government rejected outright the charges that there had been maladministration and therefore is not even addressing the recommendations at all. How would you have responded, what would your thoughts be, if they had accepted that there had been maladministration but had said that the cost of putting it right was far too high for the public to bear?

Mr Parr: Tony Blair in Parliament gave the figure of £15 billion without saying this was a cash value spread over 60 years. In the annex at the back of the formal response it comes out that the figure is nearer £3 billion. Spread over 60 years the cost of it is under £100 million a year at the peak, and that does not take into account the savings that will be made to the tax claw-back and not paying benefits. In this morning's Private Eye there is a comparison that the cost of paying the pensions that we were promised is one four-hundredth of the cost of public sector pensions.

Q92 Jenny Willott: To some extent the Government would have the right to say, they determine their expenditure and they could say that they felt that was still too high. Would you feel less wronged if the Government accepted maladministration but was not prepared to pay? What bugs you the most out of the Government's response?

Mr Parr: I think the fact that there was no discussion of it. It was a foregone conclusion. It took, I seem to remember, about three minutes in the House, and that was all that was said about it. I expected at least there to be some debate and some batting the issue back and to, but it just vanished.

Mr Duncan: As soon as the Ombudsman's report was published, Tony Blair stood straight up in Parliament and said, "It's going to cost £15 billion. Don't want to know." He did not even think about it. He just come out with that figure, just plucked it out of the air and shoved it there, and all the papers and all the media jumped on that £15 billion a year. I was really upset. The Ombudsman took her time and made a lovely big report out of it. It was supposed to be independent. We knew that, to start with, the Government were saying there had not been maladministration; we were saying there had been. An independent report came out, and that independent report came down on our side - and the Government do not like it. I am not very happy at all with the Government - my Government.

Q93 Jenny Willott: Dr Altmann, you have suggested that the money does not need to come from the public purse, that there are other sources it could come from. Could you explain where the money could come from?

Dr Altmann: That brings in a very important point. The Government's response to the Ombudsman's report does not respond to the report at all; it responds to what it says the report says which is not what it actually says. Nowhere in the report does it say that the Government must fund compensation for everybody out of taxpayers' money. It does say that the Government must organise compensation to be paid. We all know that there are other areas and ways in which government can raise funding for this. One would be unclaimed assets, which we first proposed in 2003. Frank Field was very much involved in suggesting that unclaimed assets could and should be used for this purpose. Initially we were told, when we went along to the DWP, "This is not government money, therefore we cannot spend it," and we accepted that. We could understand that logic, if you like. But the very next budget, the Chancellor decided, somehow, that they could use it - but only for what he called "good causes" which was not these people. There is money available from non-taxpayer funded sources. There is money that many in the financial sector have earned from managing all these pension schemes all these years. There are, in the Government's view perhaps, employers who behaved reprehensibly. Government has the ability perhaps to put pressure on them to redress some of the wrongs that they have caused. There are employers who have walked away from their pension liabilities perfectly legally, who the Government now somehow says are responsible for this, therefore the workers cannot get any redress at all. If that is what the Government believes, the workers have no power to force the employers to do anything. The Government has not even been willing to discuss ways in which we could right this wrong. It is not a capital sum that needs to be found today anyway. These are pensions. They are paid year by year over a long period of time. The amount of money should not be the issue. This is an injustice. This is a mistake that the Government has made. The logic would then say, "The Government must always make huge mistakes because then it can say, 'We cannot put them right. If you make a tiny one, well, we will pay up'." The logic escapes me in the Government response. It is somehow, as Lord Turner seemed to be alluding to this morning, this defence mechanism that, if the DWP or a government department is found to have done something wrong, it then puts all its efforts into denying it and proving against all the evidence that it did not do anything wrong instead of saying, "Okay, let's look at what we did, let's learn from it, let's make it right." This is a defined group of people. In the scheme of the population as a whole, this is not a massive number of people, but it is a significant number. In terms of Members of Parliament, it is constituents who have been wronged by government. The Government has spent a lot of time trying to pretend that it did not do anything wrong, when the evidence clearly shows that it did.

Q94 Jenny Willott: One of the things that could be taken as the Government's response is the Financial Assistance Scheme. Since the Ombudsman's report came out, they have announced a big expansion of the Financial Assistance Scheme. Do you think that is going some way to solving some of the problems? Do you think that is at least a small step in the right direction, or do you think it is going in the wrong direction, given what you would like to see?

Dr Altmann: The problem fundamentally with the Financial Assistance Scheme - and of course any extra money is welcome that anybody affected by this might get - is that the existence of this so-called Financial Assistance Scheme has diverted attention from the underlying injustice and the underlying losses that people have suffered. In a way, perhaps, it has been quite politically astute for the Government to portray this in the way it has, but I find it deeply worrying that the Financial Assistance Scheme has been a further example of government misleading people. In its statement, the full response that the Government laid in the House the week before last, where it was setting out in detail how it believes it did not mislead anybody into believing pensions were safe, it has misled Parliament, because that statement says "The Financial Assistance Scheme will provide 80 per cent of expected pension to people like these who have lost their company pension." That is not true. The Financial Assistance Scheme provides nothing even close to 80 per cent of expected pension. I have outlined for you in my papers why the so-called core pension is a very clever term which the DWP has invented to make it sound as if it is something to do with the expected pension but actually it is only remotely connected. It makes it sound as if it is something meaningful but it is not. The estimated costs of this Financial Assistance Scheme are quoted without taking account of the fact that all the payments are taxed and the people receiving them would not otherwise receive means tested benefits, so the net cost of the scheme is far lower than the actual amount published. The Government has claimed that the fact that there is a Financial Assistance Scheme is a tremendous credit to the Government because nobody before 1997 had put in such a scheme, but the fact is this could not have happened like this before 1997. It was the changes that were made in 1997 that caused these dreadful losses. Nobody lost their GMP before 1997. Annuity rates, funding rates were all different before 1997 and before 1997 trustees had discretion to divide the assets fairly on wind-up if there was not enough. That was removed by the law.

Q95 Jenny Willott: Under the Financial Assistance Scheme, you presumably both qualify.

Mr Parr: I do, yes.

Q96 Jenny Willott: What proportion of your pension are you expecting to get under the current arrangements?

Mr Parr: It depends whether you take the pension entitlement or whether you take the pension expectation. I was supposed to retire this coming September, in 12 weeks' time. Had I worked right the way through to retirement, I would have expected a pension of round about £15,500 a year. Because the scheme closed before I reached my retirement age, my entitlement has reduced. That does not come as a surprise to me. You would expect that if you do not work as many years, you get a reduced pension. On the last statement that I had, I was due a pension of just under £13,000 a year. I will probably get, with the make-up from the FAS, something like £9,600. But that £9,600 is not indexed, and there are other losses as well, that I cannot commutate any other pension, in terms of a lump sum - which you need for paying off endowments, the shortfall - and there are differences like life assurance as well in the way that it changes. The £12,000 cap is one of the most inequitable things of the FAS, because all that does is penalise people with long service.

Q97 Jenny Willott: How about you, Mr Duncan?

Mr Duncan: I have been in touch with the independent trustees and we have been told that until the pension scheme is fully wound up nobody can tell you anything. They cannot tell us how much we are going to get out of the financial scheme or anything. As I said, the last news bulletin I had from the independent trustees said that we were going to get roughly seven per cent. I retire in 10 months' time and I have never had anything from the Government or financial scheme telling us how it is going to work anyway. When I asked the independent trustee, he said that, until the scheme is fully wound up, nobody can tell you anything.

Q98 Jenny Willott: So you still have no idea and it is supposed to kick in in ten months' time.

Mr Duncan: I still have no idea at all and it kicks in in ten months' time: ten months, one day, one week and so many hours.

Q99 Jenny Willott: Not that you are counting.

Mr Duncan: Not that I am counting.

Dr Altmann: The Financial Assistance Scheme will not pay out until the scheme has finished winding up.

Mr Duncan: That is right.

Dr Altmann: Even if Bob is 65. Stan Carpenter, the example I gave you, and all the members of the Perivan scheme, lots of these other big schemes, even when they go well past 65 because the scheme has not actually finished winding up, they do not get any Financial Assistance payment. Some of them will get an interim payment, which is not even as much as the full payment, but the other frustration I think for everybody is that, before the scheme winds up, their money is actually sitting somewhere in a bank and trustees have control over their money but are not allowed to pay them their pensions. Even at the equivalent of the Financial Assistance Scheme level, they are not allowed to pay them anything because these moneys are waiting to buy annuities. Every week that goes by, more schemes will be buying annuities and the money will be gone, but for the last few years they could all have been receiving their pensions. Their money is sitting there but eventually it will go to Legal and General or the Prudential to buy annuities for other members of the scheme, due to the priority order that was introduced in 1997 which takes their pensions away.

Q100 Jenny Willott: How long does it take on average to do a wind-up?

Dr Altmann: On average it is about seven years, I believe. In 1999, the Government, under Stephen Timms, started an inquiry into speeding up pension fund wind-ups and issued a report saying: "We must speed up the wind-ups." I feel it is somewhat ironic that the only recommendation of the Parliamentary Ombudsman that has been accepted - now some seven years on - is that the Government should speed up wind-ups.

Q101 Jenny Willott: Both Mr Parr and Mr Duncan are in what could be seen as the fortunate position of being ex-employees of companies that have actually gone into insolvency. What should be being done and what is being done for those where the pension scheme has been wound up but the company is still solvent and operating?

Dr Altmann: They are being excluded from any assistance. Quite frankly, the situation of solvent employer scheme wind-ups is the most dramatic evidence of the maladministration that the Ombudsman has found in many ways, because, when a solvent employer just decided that it wanted to wind up the scheme, it was legally empowered to do so and the only payments that needed to be made into the scheme were funds sufficient to bring it up to 100 per cent funding on the minimum funding requirement. Government weakened that minimum funding requirement. Government took decisions about the MFR which failed to consider the position of wind-up, even though the original policy intention was to ensure security of members' accrued pension rights on wind-up, but solvent employers could walk away only having to put in enough to meet the MFR, even if they could afford more. Indeed, I have examples of schemes which, when they decided to wind up, were 104 or 105 or more per cent funded on this MFR and the trustees had to pay money back to the shareholders to bring it back to 100 per cent funding, leaving members without their pensions, but the shareholders getting some of the money. Those were the direct results of the Government's oversight of the minimum funding requirement, which became a maximum funding requirement and was totally inadequate for delivering the original policy intention, which was to secure pensions for everybody who was already getting a pension in full with annuities, and a transfer value giving a reasonable expectation of full pensions for anyone who was not yet drawing a pension. Even that reasonable expectation was never explained to the public. What it meant was that there was only a 50:50 chance of you actually getting your full pension but that was weakened further and nobody was actually told or warned about that.

Mr Parr: Perhaps it is worth making a comment on that. Both the Government and the media tend to portray employers as one of the evil parties in all of this. With a solvent employer, a solvent employer could be in a position where they are in competition with cheap overseas imports or something like that and are trying with the best will in the world to preserve jobs. It is not that solvent employers are taking money out of the pension fund to increase their profits. In most cases it is that they are going into the scheme wind-up because it is that or the company closes with the loss of jobs. The employers are not always the evil parties that they are portrayed as.

Q102 Mr Prentice: On this business of the wind-up, seven years, you said, on average to wind up the scheme. Why does it take so long? If that is the average, there must be wind-ups that take ten years.

Dr Altmann: More.

Q103 Mr Prentice: What is the longest wind-up that you are aware of, because you have gone into this in great detail?

Dr Altmann: I think there are some still from the early to mid nineties. The reason is the process that you have to go through on wind-up, first of all. Again, part of the problem was caused by the changes in 1997 as well. Before that, the Government would take all these guaranteed minimum pension right back into the state scheme as a whole, but, since that time, trustees have to agree every penny of the guaranteed minimum pension right with the DWP. That is part of the reason. Part of the reason is that the scheme records themselves were kept in an appalling state. Many of them are incomplete. Many trustees did not take enough care over scheme records - that is true - but partly, also, the independent trustees who are appointed have to go through all these processes of trying to find out if there is any money owing to the scheme. Partly, I suppose, there might be an element of: trustees are paid for the amount of work they do: there is no control and no limit on the amount they can charge a pension scheme. They have first call on the assets, so, perhaps, to some people, the longer you go on, the more money you earn. I would hate to suggest that that is a primary cause at all.

Q104 Mr Prentice: It is a nasty world out there.

Dr Altmann: But it certainly does not give the independent trustees any sense of urgency in finalising the wind-up.

Q105 Mr Prentice: What happened to the Stephen Timms' review that you spoke about a few moments ago? Is it still chundering on?

Dr Altmann: I believe they looked at it around 1999/2000 but nothing seems very much to have changed. Perhaps it went on to the back burner. There was also a report by Opra, the Regulator, which suggested there had been some success in speeding up some of the wind-ups because there were fewer schemes which had been in wind-up for over ten years before.

Q106 Mr Prentice: This causes terrible injustice if these wind-ups take forever, does it not?

Dr Altmann: First of all, it is the insecurity and uncertainty to which people are subjected, because they do not have a clue what they are going to get. Second of all, the people who reach pension age or the people who become terminally ill are denied their pension as well, so they start their retirement without the pension they saved for. When they get an interim pension during the wind-up, before it is completed, the trustees send them a small payment, saying, "This is your interim payment but we might have to take it back from you when wind-up finishes," so, even when they get a bit of money, they do not know whether they are going to be able to spend it or maybe have to pay it back. The final problem which has been so acute is that, the longer it went on, the worse annuity rates became - year by year, as Bob was describing. In 2000, he might have got 40 per cent of his pension. Annuity rates have plummeted. There are only one or two providers, so it is quite a monopoly situation, and longevity has increased, et cetera, so the amounts you get each time reduce - which is another problem with the Financial Assistance Scheme of course as well. The very fact that there is the Financial Assistance Scheme is incurring expenses to each of these schemes. In order to deliver this assistance to some of the members, all the assets of the scheme are reduced, so anyone who does not qualify for assistance will get even less pension than they would have done if there was not an FAS.

Q107 Mr Prentice: That is the sting in the tail, is it not? Can I just talk about the role of the trustees. The Government response to the Ombudsman report makes it quite clear that the trustees were the people who really should have been aware of what was happening to their scheme. In paragraph 32 of the response to the Ombudsman's report, the Government says this: "It is clear that the only people who could give information about the specific circumstances of their scheme were the trustees and sponsoring employer of the scheme in question." I suppose my question to this - because Mr Duncan and Mr Parr you were trustees - is what kind of training did you get about what it meant to be a trustee?

Mr Duncan: I became a trustee about a year before it went into liquidation. They sent us to Leeds for one day.

Q108 Mr Prentice: Is that typical of what a trustee could expect?

Mr Duncan: I should not have thought so, but the company did, because the company had to pay for it. Whether they took it out of the pension scheme for sending us there, I do not know. I was convenor. I heard what you said about it is only the trustees which run pension schemes, but when people work on the shopfloor they just do not think that way. People, especially in a full union shop, they trust the union man. I was trusted as a union man and I went and got all the leaflets. This was before I became a trustee. The leaflets and the brochures, all came into my possession over the time, because people brought them. People on the shopfloor will come and talk to the union man before they will go and talk to trustees. I know there are member trustees now, and I was a member trustee, but it is still the union they go to.

Q109 Mr Prentice: I asked the Ombudsman the same question when she was before us. What did the union do to tell you about the responsibilities that you would have as a trustee? Did you get any separate training from the union?

Mr Duncan: No.

Q110 Mr Prentice: None at all?

Mr Duncan: Just the basic training, when you go away for a couple of days' basic training. It was everything to do with the union, and that was years and years ago anyway.

Q111 Mr Prentice: Sticking with this, in paragraph 34 of the Government's response to the Ombudsman's report, the Government says, "There were, and are, substantial responsibilities for trustees, many of whom act in a voluntary or unpaid capacity. It is nevertheless the case that all" - that is people like you - "would have had professional advice available to them. Indeed, the law required and requires that to be the case." I do not want to quote at great length, but did you ever think of getting in touch with the scheme's actuaries or the professional people involved, because the Government seems to suggest that this is the kind of thing that you, as an independent trustee, ought to do.

Mr Duncan: I talked to the actuaries. We used to have a meeting with the actuaries every three months anyway. As I say, I was only a trustee for round about ten months. I never really asked to see the actuaries. The actuaries came into the factory every three months and we always had a meeting with them. The only thing they were saying was that the scheme was to the MFR. They were quite happy with that. I had the Opra book before I was a trustee and that is what I always read. I kept reading that Opra book and page 28 told us that the pension was safe and guaranteed. It is all right for the Government saying, "You should say this and say that," but that is what I had and that is what I read and that is what I went by.

Dr Altmann: Bob is the one who showed me the 1997 Opra handbook for trustees - which was wrong. It was factually wrong. The DWP says, "Well, Opra corrected that in 1999, so it does not matter that the 1997 one was wrong," but the 1997 one said: "If your scheme is 100 per cent funded on the MFR, it will have enough money to pay all of accrued rights on discontinuance" - on wind-up. The fact that it was corrected in 1999 was never brought to Bob's attention. He only got the 1997 one.

Q112 Mr Prentice: I am just trying to get clear in my own mind about the responsibility of the scheme's actuaries because the Government in its response tells the world that they would know what was going on and the scheme's actuaries would give a true assessment of what was happening to the scheme. But that is fanciful. It just did not happen in practice. That is what you are saying.

Mr Duncan: The actuaries were just telling you that the scheme was fully funded. To an ordinary layman that is what they were telling them anyway.

Dr Altmann: There was no requirement to disclose what would happen on wind-up. The Government could have required disclosure. Indeed, that was the heart of the actuarial profession's recommendations in 1999 to the Treasury and to the DSS. The Institute of Actuaries said to the Government, "We must disclose the fact, because members think 100 per cent MFR means they have enough money to pay pensions and it is not true." Government ignored that advice.

Q113 Mr Prentice: So you have the faculty of actuaries, or whoever they are, making this recommendation to the Government and the Government ignoring them. That is what you are telling us.

Dr Altmann: And the Government somehow failing to see the connection that meant it needed to do something itself. It seems to have ignored that. You could argue that it was concerned about not undermining final salary schemes because of the implications that that would have for public spending on pensions. That is something, again, we should not lose sight of here. The basic pension in the UK is so low that it is only these additional pensions that give people any hope of some kind of decent standard of living in retirement. The Government has been able to pay such a low basic pension because of these schemes. There was some hidden perhaps policy intention to pretend it was safe, even if it was not. The Government itself said, "We are responsible for protecting members' rights" in 2000. The 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." So they knew at that time that it was not the trustees' responsibility, it was their own. We are now, in 2006, trying to reinvent history.

Q114 Paul Rowen: Can you tell us how many people roughly are affected by this particular decision?

Dr Altmann: It is at least 75,000. The Government's response suggests there may be 125,000. We do not know the exact number, but I would imagine it is somewhere between those figures.

Q115 Paul Rowen: Have you done any calculations? The Government has quoted this figure of £15 billion. If you were to go back to the guarantee, what would that cost estimate be?

Dr Altmann: The £15 billion figure is not correct anyway. I think one has to make that clear. Even if you assume that the Government calculations are appropriate - which, as I have explained, I do not - the £15 billion takes no account of the fact that these payments would be taxed and there would be also a net saving to the exchequer from not paying means-tested benefits. The proportion of the costs of any compensation scheme that would comprise reinstating people, for example, back into the SERPS system, as they would have been en bloc before 1997, is difficult to estimate, but I would expect it may be half, on average. As I say, the amount of GMP will differ between members depending on their length of service, how long they were contracted out for and so on. I have seen a number of people's entitlements and a number of people's statements, and I would say that, from an anecdotal point of view, seems a possible estimate.

Q116 Paul Rowen: Mr Duncan, as a trustee, what is the role of company trustee? Were they advising you of any problems when this was happening?

Mr Duncan: The company nominated trustees?

Q117 Paul Rowen: Yes.

Mr Duncan: They knew as much as I did. I am sure they did. They were not senior managers or anything like that, the company trustees, they were just junior managers, and they knew as much as I did. The companies still recommended the pension scheme. They always did and always had, but they were reading roughly the same material I was.

Q118 Paul Rowen: Who was providing the actual information to say that the scheme was okay? Were you getting independent advice?

Mr Duncan: Independent actuaries, yes.

Q119 Paul Rowen: They were supporting what the company was saying and what the DWP was saying.

Mr Duncan: That is right. The MFR was all right, so ... There was only a valuation every three years. They company I worked for went bust and they had already done one two years ago, so it was another year before we were going to get an up-to-date actuary report.

Q120 Paul Rowen: And the previous one did not give you any indication.

Mr Duncan: It did not give any indication at all.

Q121 Chairman: If the Institute of Actuaries said - which it did say at a certain point - "Look, we need to be telling people about the risks here," why were they not saying to actuaries, "You must tell all the schemes about the risks"?

Dr Altmann: One can only assume that they believed it was the Government's responsibility to take the lead on this. The actuarial profession was required to certify whether the scheme met the MFR or not. The actuarial profession was supposed to assess on an ongoing basis whether the scheme would have enough money to pay the pensions. On the basis of the assumptions in the MFR, which were approved by the Secretary of State for Work and Pensions, it was the Secretary of State for Work and Pensions who signed off on the adequacy or otherwise of the MFR and the Government consistently said this was adequate, even though the original policy intention was to ensure that pensions could be met on wind-up and the Government was warned that this policy intention was not being adhered to by 1999/2000. I think there has to be some element of culpability, at least in a moral sense, on the actuarial profession. Whether individual scheme actuaries were aware of the 50:50 chance, I do not know, but, as far as any legal culpability is concerned, they did nothing wrong. They had to put a note on the accounts which mentioned that, on wind-up, there might not be enough money, but it was couched in a way that would not lead anyone to believe that there was a problem of the kind of magnitude that the priority order created involved in this whole system. It is the fact that people can lose an entire life savings and get less than they would have got if they had never gone near the company scheme and lose their State Pension equivalent as well that is so dramatic. That I think the actuarial profession probably felt had severe policy implications that the Government needed to deal with and were throwing down the challenge to the Government. The Government actuaries department did the same. The Ombudsman uncovered evidence that the Government actuaries department was also suggesting to the Government that there was a huge risk out there that people were facing and they did not know. If somebody had done something about it in 1999 or 2000, the worst of these things would not have happened. It kept failing until 2004 in this dramatic way.

Q122 Kelvin Hopkins: I attended your very excellent briefing of MPs after the Turner Report, which I thought was very persuasive. At one point you drew attention to the vast amount of money in tax relief on savings to the rich. The annual cost of compensation, even if it all fell on the Government, would be a tiny fraction of that tax relief, I suspect.

Dr Altmann: Every year we spend £20 billion on tax relief for pensions - £20 billion every year - of which over half goes to top-rate taxpayers. The other thing that I find so striking when I think about the magnitudes involved in compensating people like these, who did all the right things, believed and trusted the Government and did everything we wanted them to do, is that we have just had a significant reform of pension contributions and tax called A-Day on 5 April this year, which allows top earners to put vastly more into their pension with full, top-rate tax relief going forward, which is going to cost the Treasury probably a few billion pounds over the course of the next few years, and yet somehow the cost of £100 million or £150 million a year of righting this terrible injustice is said to be unaffordable. I just find that very difficult to get my head round. I am not saying anything about top-rate tax relief there; I am saying something about the priorities that seem to be involved in pension policy decisions and public spending decisions which I find difficult to comprehend.

Q123 Julie Morgan: The Ombudsman gave us a very convincing case of maladministration, I felt, describing the pensioners who came in to see her, with the leaflets that they had used at the time, and I think she produced a compelling report. As you say, one of the recommendations was that the Government should find a means of payment. Do you not think that, realistically, the best, most helpful way of getting money to the pensioners is to do something more via the Financial Assistance Scheme, despite all its drawbacks, and the difficulties with it. Do you not think realistically that that is the most likely way we can get the Ombudsman's recommendation implemented?

Dr Altmann: I cannot talk about the politics of this and I think you are asking me a political question. As far as the realities of the situation are concerned, a mechanism has been set up to deliver assistance to some of the people affected. It is not compensation; it is assistance, which is an issue. But it has been set up in such a way that it has hardly delivered any help to anybody and it has cost the taxpayer a huge amount of money. I am not quite clear of the merits of continuing to run a separate Financial Assistance Scheme when we already have an infrastructure via the Pension Protection Fund which could well incorporate payments of this kind, topped up by government funding. But, if the Government continues to want to run a separate system, for reasons best understood by itself, as long as that pays enough money to everybody that is an administrative question. The real problem with the Financial Assistance Scheme is this concept of core pension, which has misled everybody into thinking that it is anything like the expected pension when ultimately it really will not be - but that is just spin - and the fact that it is taking so long to get up and running. It is staffed by people who had no experience in pensions at all when they started and it has taken a long time to get everything up to speed. I know there is a Financial Assistance Scheme, but there is also money sitting there that could be given to people who need it. The longer we wait for all of these things to happen administratively, the more people will be left without their pensions when their money could be given to them now. That is a practical matter. If the Government will accept maladministration, we can then talk about the best way of redressing that maladministration and the consequences of it, but we are not even at that point yet.

Q124 Julie Morgan: I accept that that was a political question, really seeing what the best way is for politicians to go on this particular issue. Last weekend, in Cardiff, I met a group of ASW pensioners and a number of them had paid into the scheme for 30 years and were not within the 15 years that the Financial Assistance Scheme was offering. I wondered what comment you would make about the only form of help that the Government is giving is addressed to people who are nearest to retirement age. I understand they deliberately made that decision because they felt it would help people who would be most in need. What do you think about that logic?

Mr Parr: There is a big injustice in the way that the FAS is organised, even after the revision that has just been announced. We know of people at ASW Sheerness who have only been with the company maybe eight years but are within the FAS window, whereas a colleague of mine, a very good friend of mine, is just one month outside the window, he will get nothing whatsoever, and he has got 25 years' service. On the other hand, we have senior management who managed to get out, fortuitously, just before the company went into receivership, who get their full pension and immediately get another job elsewhere. The sheer injustice of the way that it operates is appalling.

Q125 Julie Morgan: I do not know whether you have any comments about the huge emotional strain and distress that has been caused to pensioners. Certainly in Cardiff what people were saying at the weekend was absolutely heartbreaking.

Mr Duncan: As I say, I was 58 when I got made redundant. I was out of work and I thought, "I'm not going to get much here." I started working for an electrical wholesaler, just driving round the Midlands. We were making ends meet, but not a lot, because the missus was just doing part-time work in a school kitchen and I was getting a couple of bob an hour for doing this driving. I made the decision, because it was getting us down a little bit, that if I am going to have no money I would rather have no money living up North than living down South. People seem to manage a lot better up North because they are used to it - and don't say there is not a North/South divide, because there bloody well is! I am sorry. I took the decision to sell my house and move into a smaller one, so that at least I would get a bit of money, but, living in Leicester, the estate I lived in, it was all white when I moved in, like, but it was a Muslim estate when I moved off, so for whatever reason, that kept the price down. So I did not get as much as I thought I was going to get for my house, but at least I made a little bit from the house. I bought up in Jarrow. When I went up there, I had not got a job and the missus had retired. I was on Jobseeker's Allowance and I thought, "I'm 61, I'm not going to get a job" but one turned up and I started working for the Royal Mail. They put us on night shift. Well, I had never worked night shift in my life. I was loading mail trains up in the middle of the night. It was pretty heavy work, like, you know, and that was really making us bad. In the job I worked for, I was an engineer, I made shoe machines, and I quite enjoyed my job, but this was getting us down - but it is a job, you know, and you do it. So they took the mail trains off and they shoved us up at Newcastle Airport, in the middle of winter, freezing cold, with the wind coming across the airfield. That was fairly heavy work. Okay, I have got a job now where I drive. I go to Birmingham every night from Newcastle. I take my time going down but drive fairly fast going back - you know, because it is the job finished. It has not been easy. I am always tired on a weekend. I finish about two o'clock in the morning on a Saturday morning. By the time I pull myself together and have had a sleep, it is Sunday morning and you are getting ready to go back to work again. It has not been easy. Now I know I am not going to get any pension at all - or at the moment I am going to get none. Hopefully everything will be sorted out in the next few years, but, like I say, I have got ten months to do, and what is going to happen in ten months' time, God only knows. I am not a great worrier. It gets us down but I know there are a lot of people really been made bad by it. I have seen people. The lad I used to work with, he nearly had a nervous breakdown. Okay, I have been lucky that way. I worried once before, when I bought my house in 1968. The interest rate went up a third of a per cent and I had to find anther £100 in 1968, and that is when I worried. I lost two stone. I said, from that day onwards: "I won't worry about anything" and I have not. Okay, say in ten months' time I will be worried sick, but it is ten months' time.

Mr Parr: It affected me in a very big way. When it all started going wrong in 2002, my heart went off into atrial fibrillation. I had a couple of jump starts, shocks on the chest, which brought it back into operation again. But last year, at the time of the General Election, I was up in Kirkcaldy, campaigning in Gordon Brown's constituency about the pension issue. We had somebody from the Pensions Action Group standing against Gordon. When we came back to Gatwick, I started to feel very, very peculiar and I pulled up on the edge of the M25 and told my wife to take over the driving and get me straight to hospital because I was losing touch with reality. She took me to the nearest A&E unit, which was Medway Hospital. I had gone into ventricular tachycardia (which is a very fast heartbeat) and whilst in A&E I actually had a cardiac arrest. For the General Election last year I was in the intensive care unit of Medway Hospital. It is certain that the running around, the pressure and the stress and the worry of the pension played a major part in that set of circumstances.

Dr Altmann: As I said before, this is an area which the Government's response has not even started to address at all. It is assumed that the only problem is financial losses. That is obviously a big problem, but that leads to these other problems. The Ombudsman's report about consolatory payments I think is very relevant.

Q126 Chairman: I think that is probably how we should end. It is good of you to come along and tell us particularly the human side as well as the financial side of what we are talking about. We think we have an obligation as a Committee to try to do something about this and we will do what we can. Meanwhile, we are very grateful to you for coming down and giving us your time this morning. Thank you very much indeed.

Dr Altmann: Thank you for listening.