The Minister for Pensions Reform (James Purnell): I beg to move,

It is a pleasure to serve under your chairmanshipfor the first time, Mr. Atkinson. The regulations will increase the number of people covered by the financial assistance scheme from about 15,000 to about 40,000 and make additional miscellaneous amendments. I look forward to debating them.

I want to express yet again our sympathy for all those who have lost out on their pensions, through no fault of their own, because their companies have become insolvent and their scheme was underfunded. I have met dozens of people in that situation. I am sure that all hon. Members will have sympathy for those who experienced that loss. Indeed, it was because of that loss that the Government originally decided, through the Pensions Act 2004—the hon. Member for Eastbourne still has scars on his back from all those Committee sittings—to introduce for the first time not just the FAS but the new pensions regulator, with stronger powers than its predecessor the Occupational Pensions Regulatory Authority. We also established the Pension Protection Fund to provide security for people saving in occupational pensions today.

As hon. Members will recall, the FAS offers help to those closest to retirement who have already lost out on their defined benefit occupational pension because their scheme was underfunded when it was wound up and the employer is insolvent or no longer exists. In addition, it provides assistance for surviving spouses and civil partners of qualifying members. Before the 2004 Act there was no help for those who had lostout in those circumstances. The FAS as originally constituted helped only people within three years of their normal retirement age in the scheme. The main purpose of these regulations, which were laid on15 November, is to provide assistance to more people. The regulations extend eligibility for FAS to members of qualifying pension schemes who were within15 years of their scheme’s normal retirement age on14 May 2004.

Under the extension members who are up to seven years from their normal retirement age on 14 May 2004 will be considered for a top-up to around 80 per cent. of their expected core pension. There will be additional entitlement for people within 15 years of normal retirement age. Those who are between seven and 11 years away will get around 60 per cent. of their expected core pension, and 50 per cent. if they are between 12 and 15 years away.

The original scope of the scheme would have helped 15,000 people over its lifetime and I am pleased that we will now be able to help around 40,000 people who have lost out on their pensions. This will require an increase in the amount of money to be spent on the scheme and the extension will increase our total funding for the FAS from £400 million in cash terms to more than £2 billion. In net current value terms, the original £243 million cost of the FAS is increased by £540 million to £783 million.

When will members benefit? FAS payments are generally made to people aged 65 and over, regardless of their normal retirement age. New qualifying members brought into the FAS by the extension will therefore begin to reach 65 from May 2007 onwards. However, some people will benefit before then. The early access rules within FAS mean that the first to benefit from the extension are likely to be survivors of those who would have been eligible for FAS under the extended scheme.

Mr. Ian Austin (Dudley, North) (Lab): In addition to setting out the details of the measures, will the Minister tell us which particular schemes the extension will affect? I have written to him on behalf of a number of my constituents who have been members of schemes such as UPF, Beldray and Triplex. Will the extensions cover any of those people?

James Purnell: The extension will cover people in the schemes who are within 15 years of their normal retirement age. My hon. Friend has actively and repeatedly pressed me on the matter, not only through letters, but through parliamentary questions askedon behalf of his constituents, notably on the Triplex Components Group in his constituency. I can confirm that the initial payments will be made to members of the Triplex scheme in December, so at least there is good news for those people. Payments will be made to, I think, 34 people before Christmas, partly as a result of his efforts to ensure that they are processed as quickly as possible.

The extension will benefit most quickly survivors of people who would have been eligible for the scheme. If the regulations go through as we expect them to and if schemes provide the data in time, we may be able to pay some of them before Christmas.

Hon. Members may be interested to know about the payments that are going to people other than survivors. I know that that has been of some interest to them. The FAS operational unit in York has undertaken a huge amount of work, and I pay tribute to it. Its job of work involves the important and cumbersome first step of assessing all schemes as to their eligibility, and then going through the data of all potentially eligible members to see what their entitlement should be. The unit made progress on that and has now dealt with more than 900 applications from interested pension schemes.

However, we have always recognised the concerns about the number of payments. At the beginning of May, for example, we were paying only 39 members of 11 different schemes. In response to concerns expressed in the House, we undertook a review of the administration of the financial assistance scheme to ensure that we could pay people as quickly as possible. The review was published before the summer. It concluded that we should introduce new skills into the organisation, review our approach to data gathering, bring in skills from the private sector and, in the longer term, that FAS would be better placed withinthe Pension Service rather than as a stand-alone organisation. We have begun to implement the recommendations of the review. The Committee may be interested to know that Mercer Human Resource Consulting, one of the leading private providers, is now advising us on improving the service.

Mr. Nigel Waterson (Eastbourne) (Con): Beforethe Minister moves on, may I pin him down on the numbers, which may have moved on from the two figures that I am about to quote? The helpful letter that he sent to hon. Members, dated yesterday, states:

In a written answer of 30 November, he stated that557 people were in receipt of payments. As of today, which of those is the correct figure?

James Purnell: Neither, because now more than600 members are receiving payments, which is some progress from where we were in May, although we evidently want to do more. There are about 1,300 additional people who have reached the age of 65 and for whom the scheme has requested initial payments. The next stage to complete before we can pay those people is for data to be provided to the FAS unit. Although we have very good relations with most administrators, some could make faster progress towards either making requests for initial payments or completion of the wind-up. We would urge those schemes to make faster progress. Indeed, hon. Members might also have a role in encouraging trustees who could be acting more quickly to do so. I know that a number of hon. Members have been putting pressure on administrators and independent trustees in those circumstances to make faster progress.

The regulations also make some changes to the scheme qualification rules for the FAS. They will provide the scheme manager with discretionary powers to consider schemes that are currently excluded from the FAS. That will allow more affected members to qualify for assistance, although we cannot be sure of the exact number and I do not want to mislead the Committee. [Interruption.] I have just been told that the number that I gave earlier was wrong. As of today, 637 are in payment—the figure is going up day by day. In addition, 56 people are yet to confirm their personal details. They will be paid as soon as they have done so. We are on our way to paying 700 people

We will be making some modifications to the powers to include schemes in the FAS, and the regulations deal with that. There are two categories. There are some schemes in which an employer has not had a formal UK insolvency event but has undergone a similar event in its home country. We want to bring those into the scheme. There might also be schemes in which a UK employer is, to all intents and purposes, insolvent and unable to continue to function as a going concern, but technically has not undergone an insolvency event. We do not want such schemes falling outside the FAS purely on a technicality, which the regulations will prevent.

We continue to believe that where a scheme has an ongoing solvent employer, it is right to expect that employer to make good its pension promises to members. The amendments define insolvency as widely as possible to bring into the FAS more schemes without ongoing employers. The regulations also introduce a number of amendments to the calculation of FAS payments, and additional review and appeal rights linked to the determination of a terminal illness for FAS purposes. Those are necessary to provide essential clarification on certain aspects of the scheme and to ensure that it operates effectively.

I recognise, of course, that that is a difficult and complex issue, which is why I wrote to colleagues explaining in greater depth how the scheme works. I hope that that will help them to provide advice to their constituents. Whatever our conflicting views on the overall policy—we can discuss that at greater length in a separate debate tomorrow—I hope that hon. Members on both sides of the Committee will welcome the extension from 15,000 to 40,000 people. I reiterate my great sympathy for those who have lost out, and the Government have put in place this package of help to recognise their losses.

Finally, in my view, the draft regulations are compatible with the European convention on human rights, and I therefore commend them to the Committee.

Mr. Waterson: May I also express my deep pleasure, Mr. Atkinson, at serving under your chairmanship? I am delighted to have the opportunity to respond to some of the Minister’s points.

When dealing with the FAS, or “farce” as wewould prefer to pronounce it—I appreciate that it is difficult for Hansard to deal with these different pronunciations—there is a temptation to wonder whether it is better just to put it out of its misery once and for all, or to keep tinkering with it to make it a little less unfair, inadequate and objectionable. I finally concluded that I would not invite my hon. Friends to vote against the regulations, so if Labour Members want to do a little early Christmas shopping they can feel free to go.

The FAS is still a pretty inadequate, expensive and inept scheme. I would go as far as to agree with these words:

Not my words, of course, but those of the parliamentary ombudsman in her report in March. As the Minister pointed out, we will have a much longer opportunity tomorrow to debate the ombudsman’s report, the Public Administration Committee’s report on it and the Government’s failure to abide by its conclusions. Today I wish to ask how, if at all, the regulations will improve the work of the FAS.

It is fair to say that there are some improvements in the regulations, which we welcome and with which I shall deal in a moment. I stress that they are merely improvements to a scheme that, from the outset, was flawed and inadequate. To use a phrase popular with the Home Secretary, it was not fit for purpose.

It is interesting that the number of people being paid keeps changing, fortunately in the right direction. The Minister said that 40,000 people—up from 15,000—will be able to take advantage of the FAS thanks to the regulations. Hidden behind that figure are 125,000 people who have lost all or a large part of their pension rights. That is the number that we should constantly have in front of us in discussions on the matter. Another relevant figure is 3,000, which I suspect I got from the Minister’s letter. It is the number of people who are close enough to 65 to be eligible for payments now under the FAS. As we heard, we have still not broken into four figures in the number of people receiving payments, but I am delighted to hear that at least 637 people are receiving some payment through the FAS.

Getting this far has been a painful process. The scheme has so far cost more than £7 million to set up and administer—a point on which I shall give more detail in a moment—to deliver payments to 600-odd people. The Minister touched on the fact that the scheme was so inefficient in its early life that, in the review slipped out before the summer parliamentary recess, it was announced that the FAS would be administered as part of the Pension Service.

In paragraph 7 of the explanatory memorandum, the point is made that

Of course, that remains to be seen. As well as the ombudsman’s report there is litigation ongoing inthe High Court. It would be inappropriate to discuss that in detail, save to say that it is unfortunate thatthe Government failed to meet the deadline set by the judge to produce documents for the case. I believe that they have now been produced.

The Galvin review on the administration of the FAS was pithy and to the point. It stated:

That was a rather delicate way of saying that the wrong people were doing the relevant task. It also said:

It further concluded:

The point about the Pension Protection Fund is important. When we debated what became the 2004 Act, we proposed that instead of a wholly separate FAS, there should be a mini-PPF, administered in parallel to the main one by the same staff with the relevant skills. That would have achieved economies of scale, applied the correct principle—that payments under the main PPF should not be retrospective—and administered payments to people who are now being dealt with under the FAS. The only possible reasonfor going to all the trouble of setting up a separateunit at the other end of the country in York, atthe expense of £7 million, was to keep the two organisations geographically and politically separate. The assistance—it is important to remember that word—payable under the FAS is much more niggardly than the compensation payable under the PPF. For whatever reason, the Government took the view that they would set up the unit in York and, according to the Galvin report, that has not been a roaring success.

The Government have something to say, quite rightly, about the speed of wind-ups. There was an announcement only the other day about having a rule that all wind-ups should take place within two years. I should like to hear a bit more from the Minister about that, because the speed of wind-ups has an enormous effect on when payments are due to particular individuals. However, given all the variables to do with wind-ups, it is difficult to see how the Government are in a position to impose a maximum period.

The Government have recently used and invented the core pension—the Minister used that term—which is a brand new concept in English pensions law, relating to something that is different in many respects from the expected pension for people who have lost their pension rights. Many of those in the 80 per cent. band will lose, on average, about half their expected pension under the FAS, people in the 65 per cent. band will often get well under half, and most of those in the50 per cent. band will get between a quarter and a third of their scheme entitlement. It is important remember that there is an overall cap of £12,000, which is not to be indexed in any way for future inflation.

As hon. Members have said, the FAS can, at the request of trustees, make discretionary initial payments in anticipation of the eventual receipt of annual payments. Does the Minister have at his fingertips, or will he write to me about, how many such initial payments are being or have been made so far?

Another issue, foreshadowed by one of the Minister’s predecessors some time ago, is the cut-off date. I am not sure if the Minister touched on that in his remarks. It is important that there should be a cut-off date of 28 February 2007 for events coming within the remit of the FAS—it is sensible and necessary—but are there any plans specifically to advertise that date as it looms closer, so nobody is caught out? It is difficult to imagine anyone who might not have thought about putting in a claim as yet and will not have done so by the end of February next year, but it is important that, if there is to be a cut-off date, people are acquainted with that fact.

I am in two minds about the provision in the regulations that the scheme manager should have discretion in certain cases to accept qualifying schemes where there has not been a technical insolvency event, but where

That is a difficult judgment call to make and I wonder whether the scheme manager would be the right person to make it and what level of proof would be needed to reach that conclusion reasonably. Another criterion is that

I have a vague recollection, from studying corporation law many years ago, that that is the same as trading while insolvent. It would be useful to have some clarification today or subsequently.

We welcome the fact that an employer’s overseas insolvency event should potentially be a qualifying insolvency, which is eminently sensible. It was a strange loophole and it is right to deal with it. We also welcome the extension of the eligibility criteria from three to15 years within the normal retirement age, which is why we will not vote against the regulations. However, that does not dilute our anxieties about the relative meanness of the FAS, even with those changes.

We welcome, too, the clarification of the positionin relation to survivor eligibility. The changes are important and useful and we commend them. A member who satisfies the relevant conditions will still be a qualifying member, even if he died before the regulations came into force in September last year. It is worth remembering that there are, and will continue to be, people who die before they can benefit themselves from the scheme. Although it is comforting to know that the speed at which claims are being dealt with has picked up, it is still disappointing.

A couple of queries arise from the Minister’s letter of 5 December 2006. The figure of more than 600 of those in receipt of payment has been clarified. It is interesting that a letter signed only yesterday referred to a figure of 450, although I dare say that it is difficult to keep up. He goes on to say:

In the league of massive understatements that comes pretty high up, although Conservative expectations for the FAS were not very high to begin with. Our feeling was why reinvent the wheel and set up a wholly separate organisation with its own cost overheads and so on simply to deliver payments that could easily be administered by the staff of the Pension Protection Fund.

I referred to the two years’ wind-up, which is also mentioned in the Minister’s letter, which seems to contain a typographical error. It says:

it should be “should have”—

My questions on that matter stand. To what extent can one enforce a maximum period?

I hope hon. Members will receive a copy of the Minister’s letter. The penultimate paragraph states:

I want to press the Minister on those remarks, as we are in the run-up to the festive season. Will he give an undertaking that if the data from the schemes are available in time those payments will—not may—be made before the end of the year and ideally before Christmas?

Our complaints about the FAS boil down to two main things, which I have dealt with in detail. The first is that it has not been competently administered and it did not need to be separately administered in the first place. The second is the concept of a core pension. The Minister was probably doing a different job at the time, but the FAS was first unveiled on 14 May 2004 before an unsuspecting world not because it was the right thing to do but to avoid the Government being defeated in the House of Commons on the Pensions Bill. We always said that the FAS did not have enough funding, that it was not designed to work properly and that it would mislead people into thinking that they would receive compensation to which they thought they were entitled.

I have quoted what the ombudsman said about the FAS and the likelihood of its providing the kind of compensation that she or the individuals concerned envisaged, following the loss of their pensions. Ifinish with one more quotation, from the Public Administration Committee. It concerns something of which I suspect we shall hear more tomorrow. It states:

By that the Committee meant by comparison with the Pension Protection Fund in the 2004 Act, which we broadly supported.

We shall support the regulations, although theywill not make a silk purse out of a sow’s ear. TheFAS will remain a sow’s ear, but at least some more people will receive more money as a result.

Mr. David Laws (Yeovil) (LD): May I, too, welcome you to the Chair, Mr. Atkinson? I also thank the Minister for setting out the background to the regulations. Like the hon. Member for Eastbourne, we do not intend to vote against them, because they are an attempt to make the financial assistance scheme more generous than it was. However, that generosity is an increase from a very low base indeed, as I hope that the Minister will indicate, as his predecessor did before moving to his current job in the Cabinet. The previous scheme was phenomenally underfunded, ungenerous and dealt with only a tiny number of people who were close to retirement age. The proposals improve the generosity of the financial assistance scheme, but still leave an awful lot of holes.

The hon. Gentleman reminded us of the political context behind the introduction of the scheme. The Government were obliged to introduce it because of opposition to their previous position from all parts of the House. They then made further improvements, under pressure from Government Members and other parties, and in the context of the wider problems with pensions and the loss of many occupational pension schemes for a large number of people.

I thought that I heard the Prime Minister being questioned on the issue today, at Prime Minister’s questions, although I do not know whether the Minister was there.