The Minister for Pensions Reform (Mr. Stephen Timms): I beg to move,
That the Committee has considered the draft Financial Assistance Scheme Regulations 2005.
The Chairman: With this it will be convenient to consider the draft Financial Assistance Scheme (Internal Review) Regulations 2005.
Mr. Timms: I bid you a warm welcome to the Chair for our deliberations this afternoon, Mr. Hancock. I am delighted that you at least are not in Cheadle but are here to take care of the debate.
The regulations, which were laid before the House on 22 June, will allow the first assistance payments to be made by the end of this calendar year, all being well. That date is in line with the timetable that we have been working to since the announcement of the financial assistance scheme in May last year.
The statutory instruments will allow the scheme to operate and to make payments to those who are most seriously affected by the failure of their occupational pension scheme. To help us reach this point we consulted industry working group members, whose help has been invaluable. I want to express my thanks to them. We also met members of affected schemes to ensure that we understood their position, and we met several MPs and trade union representatives of those who have been affected.
Hon. Members may be aware that we formally consulted on the draft regulations for six weeks from 4 April to 16 May. Our response to the consultation was published on 22 June. We listened to those who contributed to debates in this House and in the other place, and amendments to the Pensions Act 2004 and to the Financial Assistance Scheme Regulations 2005 followed in some areas as a result. As we said that it would be, the financial assistance scheme operational unit was set up in York in April and, as set out in the draft regulations, it will start handling the formal notification of affected pension schemes from 1 September this year, if the regulations are approved.
I shall begin with the Financial Assistance Scheme Regulations 2005, which are the main regulations, and explain how the scheme will operate. The aim is to provide financial assistance to qualifying members of qualifying pension schemes. Qualifying members are those members whose expected pension was reduced as their pension scheme started to wind up. Qualifying pension schemes are those schemes that started to wind up before April 2005 without enough funds to meet the benefits in full in circumstances where the employer became insolvent. Similar cases that arise from April 2005 will be considered under the new
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Pension Protection Fund, which makes separate arrangements for them.
So that assistance can be provided to scheme members as quickly as possible, we set out in the regulations a six-month notification period beginning on 1 September this year. Members, trustees and professional advisers will be able to provide the scheme with details of pension schemes that they would like to be considered for inclusion in the financial assistance scheme. A list of 380 schemes that we were aware of as potentially eligible was published on 22 February. Exclusion from that list does not necessarily mean that a scheme is not eligible. The notification period will make use of information already provided but will also allow new scheme information to be provided.
For the purposes of assessing eligibility for the financial assistance scheme, a qualifying pension scheme is an occupational scheme that started winding up between 1 January 1997 and 5 April 2005 and whose details are given to the financial assistance scheme during the fixed notification period. Several other detailed criteria have been set out in the regulations. They define schemes that do not qualify for the financial assistance scheme, such as public service pension schemes. We have also described who is deemed to be the employer in single and multiple employer schemes, and the insolvency events that must have occurred in relation to those employers for schemes to qualify. In addition to a pension scheme having to commence wind-up within a given period, it must also be underfunded. The regulations include the criteria for calculating the liabilities of a scheme to determine whether that is the case.
A qualifying member includes those who were a member of a qualifying scheme or in receipt of a survivor's pension from such a scheme immediately before the pension scheme started winding up. In addition, a person who had also become a member of such a scheme after the start of wind-up as a result of pension sharing on divorce would be a qualifying member.
To qualify, each member must have reached or be due to reach his normal retirement age for the scheme in question on or before 14 May 2007. Those in receipt of a survivor's pension must also be due to reach the normal retirement age of the former member whom they survived on or before that date in order to be a qualifying member.
FAS payments will be payable to a qualifying member in monthly instalments from the later of 14 May 2004 or the member's 65th birthday. Assistance will be backdated to the later of those dates
Mr. Nigel Waterson (Eastbourne) (Con): Will the Minister explain the philosophy behind the ruling in the proposed regulations that everyone should have to wait until they are 65, whereas in the cases of many such schemes, the eligible age is significantly lower?
Mr. Timms: Yes. Sixty-five is the normal age of retirement for many schemes. For men, it is the state pension age, and as the hon. Gentleman knows, after 2020 it will be the retirement age for women. Inevitably, in drawing up the scheme, a number of
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judgments have been made and points defined. We have done that, and the Committee considering the provision last year did so in a way that would be as fair as possible to the largest number of people. On that basis, 65 is a sensible age to choose, although I accept that for some people it will not be as advantageous as another age that may have been chosen. We want to ensure that we maximise the help available to people who would otherwise be in a serious position. That decision and several others that we may discuss in Committee have been taken sensibly in that light.
For qualifying members, the annual payment will be a top-up, which is the difference between 80 per cent. of the member's expected pension and the actual pension available to the member from the qualifying pension scheme at the end of wind-up. Expected pension and actual pension are defined in the regulations for different categories of beneficiary. Eighty per cent. of the expected pension is capped at £12,000 a year. Should the actual pension exceed £12,000 a year, no annual payment will be payable.
Mr. Waterson: Some points are easier to deal with as we go along. The cap under FAS is only £12,000, which is just under half the cap under the Pension Protection Fund. What is the philosophy behind that?
Mr. Timms: It is the philosophy that I set out a moment ago. It strikes a balance between targeting assistance on those who are hardest hit and giving some help to people who have lost part of a more substantial pension. Estimates based on the recent FAS data collection exercise show that only a small minority of members, perhaps less than 10 per cent., 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. By limiting what would otherwise be relatively large payments, we are able to spread the help available more widely. In another example, if the annual amount of potential FAS assistance is calculated to be below £520 a year, or £260 a year for survivors, no payment will be made. That helps to minimise bureaucracy and to maximise payments for those facing more serious losses.
Sandra Gidley (Romsey) (LD): The Minister mentioned minimising bureaucracy, but a figure of £16 million has been touted around for the scheme's administration costs over the first three years. Will he clarify why the costs are so high? Admittedly, the money will not be taken from the scheme itself, but when probably only an average of about £20 million a year is being allocated to the scheme, £16 million for administration costs over three years seems quite excessive. That money could be better used.
Mr. Timms: The £16 million relates principally to set-up costs. I envisage the scheme's ongoing administration costs probably being in the order of £1 million a year, but an investment will be needed to set up the scheme and the systems to support it.
I assure the Committee that qualifying members who are terminally ill can receive early payments through these regulations. I think that that will be particularly welcomed. I am referring to people who are eligible for the FAS, within three years of their scheme pension age as at 14 May 2004, but who would
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otherwise have to wait until the age of 65 to receive payments.
In addition, scheme trustees will be able to apply for initial payments for qualifying members who have reached 65 and whose pension scheme has not yet completed winding up. Those payments will reduce the anxiety for people who were concerned that they would have to wait for their schemes to complete the winding-up process before receiving any assistance. The payments will top up to a level broadly equivalent to 60 per cent. of core pension benefits. Once the pension scheme is wound up, the assistance will be increased to 80 per cent.
The entitlement of survivors of scheme members will start on whichever is later of 14 May 2004 and the day after the survivor's spouse or civil partner died. The annual payment for survivors will be 50 per cent. of the former member's rate, or the difference between 40 per cent. of the former member's expected pension and the actual pension available to the survivor at the end of winding up, depending on the date of the member's death.
Some provisions in parts 1 and 2 of the Pensions Act 2004 have been modified by these regulations following the consultation, so that they apply to the FAS. Those modifications allow for restricted information to be disclosed by the pensions regulator or the board of the Pension Protection Fund to the scheme manager of the FAS and vice versa. They also allow for the scheme manager to require certain information to be provided to him by way of regulations to be prescribed by the Secretary of State, for scheme and member eligibility and assessment purposes.
These regulations make special provision for Northern Ireland.
I come briefly to the second statutory instrument before us: the Financial Assistance Scheme (Internal Review) Regulations 2005. These set out how those affected by determinations on qualification, eligibility and amount of assistance can ask for those determinations to be looked at again and possibly revised. The regulations ensure that anyone who could be materially affected by a FAS determination—the member or their survivor—could request a review of that determination. In addition, where a scheme has not been fully wound up and trustees are therefore still in place, we have given such trustees the right to request a review of determinations on scheme notification and eligibility. That is because trustees are most likely to have the knowledge required to challenge the determination; it is also to enable them to fulfil their obligations under trust law to act in the best interests of the members of their scheme. In addition, the Department may choose to review a determination other than when an application is made, enabling the revision of earlier determinations should further information subsequently come to light even if no one has requested a review.
I assure the Committee that for someone who is dissatisfied with the review there will be provision in regulations to refer the determination to an independent appeal. We plan to make the necessary
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regulations for that in November. I hope that we will be able to publish them in September. They will enable those who wish to seek an appeal to do so. That will be the third and final set of financial assistance scheme regulations.
These regulations ensure that the financial assistance scheme will operate effectively and will provide assistance to those scheme members who face the most significant losses. I commend both sets of regulations to the Committee.
