Memorandum submitted by National Association
of Pension Funds
1. NAPF welcomes this opportunity to present
our views to the Committee.
2. NAPF has consistently supported the principle
that members of occupational pension schemes who have suffered
substantial losses through no fault of their own should receive
some form of recompense. Who is responsible for the pension losses
is less important than putting it right. However, it is clear
that only the Government can mobilise the resources needed.
3. Committing public funds to compensate
for losses in the private sector should not be done lightly. However
the nature of pensions is very different from any other type of
there was no compensation or protection
scheme for members of occupational pension schemes over the period
in question; and
scheme members had no opportunity
or means of managing the risks which they were exposed to.
4. We support the principle of redress because,
among other reasons, unless these unfortunate cases are resolved,
it will continue to undermine trust and confidence in all forms
of retirement saving for years to come. A key plank in the pension
reform programme is the principle of auto-enrolment into a suitable
pension scheme. However, it is essential that auto-enrolment commands
wide popular trust and confidence. Restoring trust in long term
savings is a vital part of the Government's reform programme.
5. We welcomed the introduction of the FAS
in the 2004 Pensions Act, albeit with the reservation that the
£400 million originally budgeted was always going to be inadequate
as the figure had been determined before the full extent of the
problem was known. We also provided technical advice with the
design and set up through our participation in the DWP's Industry
Working Group. NAPF members in the York area also hosted site
visits to help the FAS operational team's research and preparation.
6. The original assistance levels and eligibility
criteria were the worst of all worlds in creating the appearance
of a worthwhile assistance programme without the substance. To
the extent that the Government has acted positively in broadening
coverage, we welcome the announcement in the White Paper. However,
we still have reservations about the overall effectiveness of
the Scheme even with the wider coverage:
In spite of the fact that an estimated
15,000 people qualified under the original criteria, by May 2006
only 39 had received any assistance since the scheme formally
came into operation in September 2005. With total set up and administration
costs of £5 million, the scheme is costing far more than
the £24,000 it has paid out in benefits thus far. It is not
absolutely clear why it is taking so long to process cases or
why so few payments have been made.
Two years after the Act, it is disappointing
that we still do not know how many people are affected or how
much has been lost. Policy is still relying on estimates. The
reasons may be a function of the winding up process and outside
the DWP's control but whatever the reasons, a way must be found
to speed up the data processing.
The review of the scheme did not
include participation or input from stakeholders. We think that
this has weakened the final outcome.
The review has operated within the
parameters of the original design which has had the effect of
simply broadening coverage without addressing the weaknesses of
the original design which were driven by the tiny budget. Some
of these are outlined below:
The small numberless than
20of underfunded schemes which were wound up with solvent
employers continues to be excluded even though the position of
members of those schemes is exactly the same as those whose employers
The cap on assistance is set at £12,000
compared with an initial £25,000 for Pension Protection Fund
compensation and is fixed. This is not consistent with the revaluation
provisions that apply to benefits before they come into payment
at 65 and affects younger members disproportionately.
Setting the payment date at 65 independently
of the scheme pension age arbitrarily favours members of schemes
which have a lower pension age in terms of coverage. On the other
hand, those who had made plans to retire at their scheme pension
age will have to wait longer.
7. There has been a missed opportunity to
put the FAS on a more secure and credible basis and that while
more members will benefit from assistance, there are still anomalies
and problems. Not least is the slow progress so far. We understand
from the FAS website that the Pensions Minister has announced
a review of the operation of the Scheme in a letter to MPs. We
have not seen that letter and so do not know the terms of reference.
However, we would urge the Minister to include stakeholder bodies
such as ourselves in that process. Moreover, the timescale of
reporting by July is far too short. The effectiveness of the FAS
is bound up with the scheme wind up process which we understand
the Government intends to review.
8. We would recommend that:
The operational review be integrated
with the review into scheme wind ups and be given a more realistic
timetable with the opportunity for stakeholders to make a contribution.
That options such as pooling scheme
assets and/or operating the FAS as a ring-fenced sub-set of the
Pension Protection Fund be considered as ways of both speeding
up the process and achieving economies of scale.
The Government establishes a commitment
to an ongoing review of the Scheme perhaps every two or three