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Mr. Nigel Waterson (Eastbourne) (Con): I did not want to interrupt the hon. Gentleman’s flow, as he is doing extremely well, but it would not be fair to characterise the Opposition’s position in that way. I will develop that point later. Will he also clarify, however, that the minimum funding requirement, as set out in the 1995 Act, was weakened on more than one occasion under this Government?

Dr. Wright: I wanted to come to that point, which concerns liability and the denial on the part of Government, in their response to the ombudsman and to the Committee, of all liability in this area. The ombudsman herself explains most effectively why that cannot be right. First, she says,

Secondly, she says,

Thirdly, she says,

Fourthly, she says,

And fifthly, she says,

Andrew Miller (Ellesmere Port and Neston) (Lab): Did my hon. Friend’s Committee probe the ombudsman on why she did not look back to the short-termist approach that was developed in the Finance Act 1986, when caps were effectively imposed on surpluses? That was desperately short-termist and it has given rise to many of the problems that we face today.

Dr. Wright: I am sure that there are many issues that provide context and background to what we are talking about. What I am identifying—as the ombudsman has done—is a direct set of public responsibilities. This answers the question about whether these were simply private schemes. They were private schemes, but they were private schemes that sat within a framework of regulation.

Mr. Mark Todd (South Derbyshire) (Lab): I am intrigued by my hon. Friend’s reference to risk. I am sure that he is right that the Government did not prescribe that scheme trustees should advise their members on risk, but he phrased that remark in such a way that it implied that they were advised that they
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should not describe the risk of their schemes or any issues relating to that. I am a member of a scheme, and I can remember being advised by trustees of risk issues relating to it. Is my hon. Friend not mistaken in the way he expressed that point?

Dr. Wright: I was trying to say—again, this has been exhaustively analysed through the literature that was put out in relation to the protection framework—that there was no identification of the risk attached to the schemes on wind-up despite the fact that we now know that there was such a risk. That is clearly an admission.

Mr. Adrian Bailey (West Bromwich, West) (Lab/Co-op): I have listened carefully to my hon. Friend’s arguments, but it seems to me that in order to come to the conclusion that he has reached it is necessary that there be some causal link. Let me refer to a response by the ombudsman while giving evidence to my hon. Friend’s Committee. The ombudsman said that the causal argument is not in the report, and that the report does not say that the maladministration that has been talked about in terms of the leaflets caused the financial losses. Therefore, it seems to me that there is a recommendation advocating compensation while there is also an acknowledgement that the Government leaflets that are supposedly the basis for the argument did not cause the losses.

Dr. Wright: I think that there has been a misunderstanding that somehow this argument is about leaflets. I have not even mentioned leaflets yet. So far, all I have said is that the occupational pension schemes that operated during the period in question operated within a regulatory framework that had been set up through the Pensions Act 1995, and that from that certain implicit guarantees—and in some cases explicit guarantees—had been given to people post-Maxwell about the safety of those schemes. Indeed, words such as “safe” and “guaranteed,” and phrases such as “protected by laws,” were frequently used.

Mr. Robert Flello (Stoke-on-Trent, South) (Lab): I wish my hon. Friend to explain something. Given that the trustee has a fiduciary duty generally to explain matters such as risk, just because it was not explicitly put out that they are required to do so—

Mr. Deputy Speaker (Sir Alan Haselhurst): Order. It is a courtesy to address the Chair and—more importantly, and from a practical point of view—to address the microphone.

Mr. Flello: I am grateful for that, Mr. Deputy Speaker; I fear that I must find a better place to sit.

Even though it might not have been specifically stated in guidance whether it was post-1995, does not a trustee have a general responsibility, indeed a fiduciary responsibility, to explain all levels of risk in any case?

Dr. Wright: Again, the evidence available to trustees has been exhaustively analysed. We took evidence from trustees, and it was clear from the advice that they were given that the schemes were entirely safe. There can be no dispute about what was said about the regulatory framework.

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On the information that was given out, Members need to understand that the ombudsman is charged with deciding whether there has been maladministration. She took the Department for Work and Pensions’ commitment to the quality of information that it puts out and tested what happened in this case against its own standard. On the back of inherited SERPS and all that flowed from that—as Members will recall—the DWP described its commitment to information. It said that it would be

That takes us back to the question of risk. On the basis of advice given to it by its lawyers, it also said that

That was the DWP’s own test, which it applied to its own information, and the ombudsman looked at the information put out about these schemes and their regulatory framework in relation to that test.

David Taylor (North-West Leicestershire) (Lab/Co-op): My hon. Friend is right to paint a picture of employees in the post-Maxwell era losing faith in their employers and, to an extent, in their trustees; of course, the same was also true of the post-pensions mis-selling era. However, were residents of North-West Leicestershire who were in the collapsed British United Shoe Machinery scheme not entitled to rely on information that was described in the initial leaflets as “impartial information”? The then Government

Surely that was the lifeline that was thrown to many people, which disappeared beneath the waves.

Dr. Wright: Indeed it did, which is why, when the Government responded to what the ombudsman had said about their failings on the informational front, she was disturbed by the nature of that response. She said in her memorandum that it simply reinforced her finding

She gives a concrete example that is worth attending to. She says:

to her report—

As the ombudsman says,

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Mr. Jim Devine (Livingston) (Lab): Is my hon. Friend aware of the Government’s response to the ombudsman, who has not allowed us to see the full actuarial advice on which some of her comments were based? That means we cannot challenge how she arrived at some of her conclusions. Will he comment about the proposed £15 billion cost of putting right that wrong and has he had a chance to look in detail at the figures?

Dr. Wright: My understanding is that the ombudsman has said that, if necessary, she can supply the actuarial basis. I shall say something about cost in a moment.

The conclusion that I have reached so far is that the Government set up the framework of protection, after Maxwell, in the 1995 Act and then issued information about it. Those are the two bases on which people can legitimately say that they have been let down.

Mr. Andy Reed (Loughborough) (Lab/Co-op): Like my hon. Friend the Member for North-West Leicestershire (David Taylor), I have many constituents affected by the BUSM collapse. One of them alleges that, in other countries affected, the distribution on wind-up was protected by law. Can my hon. Friend confirm that a loophole in the 1995 Act allows wind-ups in this country to take place without protection? While the leaflet is important, it is clearly the 1995 legislation that is the fundamental problem.

Dr. Wright: The easiest way to agree with my hon. Friend is to cite examples of companies that operated in different jurisdictions so that members of schemes were treated differently. One example is that of IFI Richardsons, which operated in the Irish Republic and in Northern Ireland. The company went insolvent and the pension scheme was wound up, but the workers in the Republic of Ireland had their full pension protected by Irish law. The workers in the same company in Northern Ireland lost their whole pensions. So it is the framework of protection that is fundamental, not whether a leaflet said this or that. The leaflet reflected what was believed about the framework of protection that had been established.

Mr. Henry Bellingham (North-West Norfolk) (Con): The hon. Gentleman makes a compelling and well informed case. He will be aware that I represent several Albert Fisher pensioners, most of whom have lost 22 years’ worth of occupational pension benefits. They tell me that they relied on those leaflets, and the parliamentary ombudsman found that they did so, but the Government argue that she did not prove that they relied on the leaflets. The Government are essentially claiming that my constituents are not telling the truth when they tell me that they relied on that information.

Dr. Wright: My argument is that the information on the leaflet matters, but only in the context of knowing that a framework of protection has been put in place.

Mr. Gordon Prentice (Pendle) (Lab): As we are back on the subject of the accuracy of leaflets, paragraph 39 of the Committee’s report cites the Secretary of State for Social Security saying in March 2000 that

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My hon. Friend will agree with that.

Dr. Wright: Indeed. It is a basic principle of good public administration that leaflets should be of that character and that is why we are entitled to give attention to them.

Ms Sally Keeble (Northampton, North) (Lab): The point about the lack of protection is dealt with by the Pension Protection Fund. The issue for the ombudsman is maladministration. My contention is that many of my constituents who lost their pensions previously because of insolvency are not entitled to anything. If the Government were to pay compensation to one lot, they would be asked, “How about all the others?” It seems to me that the right way to deal with the issue is to provide the protection that has now been provided through the Pension Protection Fund.

Dr. Wright: Indeed. I thought for a moment that my hon. Friend was confusing the Pension Protection Fund with the financial assistance scheme, but I realised at the end of her observation that she was not and that I was able to agree with her.

Mr. Flello: I am grateful to my hon. Friend for giving way to me yet again. I apologise for pressing this point, but it is crucial. He is making an extremely coherent argument about where liability lies, which is the central matter in this debate. He is also making it clear that the fundamental problem arises from the legislation, but will he explain once and for all the position of trustees? Does he agree that, instead of relying on four brief sentences or paragraphs in a leaflet, trustees should have sought professional advice? Does he accept that, had they done so, constituents of mine and other people would not find themselves facing another bleak Christmas?

Dr. Wright: There is a trustee responsibility, but the ombudsman explored the matter and I do not think that it can be argued that the problem can be laid entirely at the trustees’ door. The Committee took evidence from trustees, some of whom were trade union members. It is clear that they could not have known about the risk that existed when a company was wound up, as everything they had been told officially pointed in the other direction.

Kelvin Hopkins (Luton, North) (Lab): I want to reinforce that point. One of the people who came to see us was a trade unionist who was described as being a lifelong Labour man. He trusted what he had been told because a Labour Government was in charge, and for that reason told his trade union colleagues to continue to pay into their pension schemes.

Dr. Wright: That was very telling and memorable evidence, as was other evidence that we gathered from people directly affected by what happened.

The Government have responded by saying that they do not accept that there was maladministration and that they are not liable. They have made it clear that
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they would like to help, if possible, although they will not provide a compensation package because the problem is not their fault. It was in that spirit that the Government introduced the FAS and then, as time went by, the extension to it.

The Government have written to hon. Members to make it clear that the existing scheme is working very well—that it is doing its job and helping people—but it is worth explaining why it is nothing like a compensation package. I do not want to go into the costs that have been cited for either a full compensation scheme or the FAS, as they are much disputed. Instead, I shall list some reasons why the FAS is not the package that is required.

I begin by stressing that financial assistance under the scheme is not paid to many people. More than 10,000 people past pension age have been affected by the problems that have been set out, but scarcely more than 400 have been paid anything under the FAS. Most of those affected are not sure when, or if, they will get help; meanwhile, they continue to suffer the consequences of what went wrong.

In addition, the Government have overstated or exaggerated the amount that people will get under the scheme. They will not get 80 per cent. of the pension that they originally expected: instead, they will get only 80 per cent. of what is called the core pension, which is much lower. Among other reasons, that is because the FAS excludes inflation linking, has no tax-free lump sum and does not start until wind-up is finished.

Further, the whole FAS payment is taxed, whereas the scheme pension would have a tax-free lump sum. The member not only receives far less pension but pays more in tax.

Members who expected to retire at scheme pension age have to wait until age 65 and the conclusion of wind-up. There is no inflation linking. The value of the payments from the financial assistance scheme will decline over time. Within 10 years, the value will be cut by more than 20 per cent. in real terms. The £12,000 pension cap is too low and is not inflation-linked. The real value of the cap will wither and take away much more of people’s pension than currently appears from the headline figures.

Sandra Osborne (Ayr, Carrick and Cumnock) (Lab): I congratulate my hon. Friend on the work of his Committee, which has made a welcome contribution to this debate. Notwithstanding the ombudsman’s report, does he agree that by introducing the Pension Protection Fund the Government have acknowledged that protection was not adequate? Should not the financial assistance scheme provide at least similar benefits to those provided by the Pension Protection Fund?

Dr. Wright: Absolutely. The financial assistance scheme is not intended to be as generous as the Pension Protection Fund. One of the problems is having a separate scheme, with those deficiencies. I will say a little more about that later.

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