Memorandum submitted by Dr Ros Altmann
The recent "extension" of the FAS
is a public relations exercise, trying to claim that people will
be significantly helped, when this is not the case.
The Statement laid in Parliament on 7 June,
in which the Government attempts to explain why it thinks it did
not produce misleading information for the public has, ironically,
itself misled Parliament! It claims that eligibility for FAS help
"has now been extended to people within 15 years of their
scheme pension age. This involves tapers from 80% of expected
pension for those within 7 years of their scheme pension age,
65% if between seven and 11 years, and 50% for those between 12
and 15 years."
This is misleading and untrue. The FAS pays
nothing like 80% of "expected pension".
The "expected pension" includes
index-linking (FAS benefits are not
uprated at all, so the real value will halve over 25 years or
is not capped at £12,000 (and
this cap is, itself, not indexed, so by the time people 15 years
from scheme pension age actually become entitled to `assistance',
the real value of this cap will be more like £8,000);
is paid from scheme pension age,
whereas the FAS benefit is paid only from age 65 (many members
lose an entire five years' worth of expected pension); and
includes a tax-free lump sum, ill-health
cover, life assurance cover, five year guarantees, etc.
All of these elements form part of the "expected
pensions" that people were relying on, and which Government
assured them were safe, but are excluded from the FAS.
In truth, people in the FAS 80% band will, therefore,
actually be getting more like 50-60% of their "expected pension"
and many will be getting 10% or less! Those in the 65% band will
mostly receive 40-45% or less and anyone in the 50% bracket will
probably end up receiving only a quarter to a third of their actual
expected pension. Of course, those over 15 years away from scheme
pension age will get nothing and many of them saved for 25 years
or more in their company scheme.
(1) All members who do not qualify for FAS
will receive even lower pensions.
(2) No recognition of loss of state pension
(3) Insisting on annuity purchase causes
delay and reduces pensions unnecessarily.
(4) Arbitrary cut-off points are unfair and
still exclude people with over 25 years service.
(5) Exclusion of solvent employer schemes
(6) Making people wait until age 65, and
wind-up is complete, is unjust.
1. The FAS does not differentiate between
contracted out pensions and scheme pension. The loss of the "Guaranteed"
Minimum Pensions which were supposed to replace National Insurance
contracted out rights is a real scandal. How can it be right that
the "guaranteed minimum pension" is not actually guaranteed?
Before 1997, all scheme members were taken back into the state
system and there was no need for complex considerations of `deemed
buyback' (in which the Inland Revenue is also trying to confiscate
members AVCs!) or buying complex annuities to cover the GMP benefit
profiles. If the SERPS/S2P rights were taken back into the National
Insurance scheme, the process of winding up would be far quicker,
the members would at least get their full state pension, and then
maybe the FAS could pay out on the basis of the scheme pension
alonenot the contracted out pension.
2. Scheme assets should not be wasted on
buying increasingly expensive annuitiesthis leaves far
less pension for most members than they should have and the process
of buying the annuities and agreeing all entitlements ends up
delaying help for members coming up to retirement age. Proper
provision should be made immediately for those who are already
over pension age, in very poor health, from scheme assets. Most
schemes could still be paying pensions to those coming up to retirement
or terminally ill, but the assets are sitting in a bank waiting
to be used for annuity purchase on final wind-up (which takes
years and which is one of the reasons why so few people have received
3. The cut-off points are unjust. There
are people who are just a few months outside the 15 year cut-off
who have 25 or more years of contributions to their scheme. How
is it right to leave them out?
4. Making people wait till age 65 and conclusion
of wind up is unfair, especially after the deal to ensure public
sector workers retain their age 60 retirement age well into the
5. Members of schemes winding-up with solvent
employers must be included. Solvent employers could simply choose
to wind-up their pension scheme and all they were legally obliged
to pay was the MFR level, even if they could afford more. When
making decisions about where to set the level of the MFR, the
issue of solvent employer wind-ups was not even considered. This
is part of the reason why the decision to weaken the MFRespecially
in 2002was maladministrative, because it did not consider
all the relevant factors it should have looked at, most particularly
the situation of wind-up.
6. In order to provide information to the
FAS, trustees are incurring often significant expenses, which
must be paid from scheme assets. This will mean anyone excluded
from the FAS will obviously be losing even more pension than if
the FAS did not exist. In other words, the Government is taking
more pension away from people who are further from retirement!
Those affected need a quick remedy, to remove
the dreadful uncertainty hanging over their lives. Waiting for
payments has been another injustice for them. If trustees were
permitted to pay out the pensions from existing scheme assets,
members could have been receiving payments immediately in most
cases. Forcing them to wait until age 65 and until their scheme
wind-up is finished, is prolonging their suffering. Justice delayed,
is justice denied!
The Financial Assistance Scheme is far more
spin than substance, has cost far too much taxpayers' money to
set up, with little help going to those in need. How can we ever
hope to restore confidence in pensions, if this issue is left
unresolved, dragging on for more years? The time has surely come
for MPs to listen to their constituents and listen to their own
conscience, to insist that Government deals properly with this
No more "spin", but properly giving
people back the lives which the law and Government carelessness
have taken away from them
Dr Ros Altmann