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|Session 2007 - 08|
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Public Bill Committee Debates
Draft Financial Assistance Scheme (Miscellaneous Amendments) Regulations 2008
The Committee consisted of the following Members:
Celia Blacklock, Committee Clerk
attended the Committee
Third Delegated Legislation Committee
Monday 14 July 2008
[Mr. Roger Gale in the Chair]
Draft Financial Assistance Scheme (Miscellaneous Amendments) Regulations 2008
That the Committee has considered the draft Financial Assistance Scheme (Miscellaneous Amendments) Regulations 2008.
It is a pleasure to serve under your expert chairmanship, Mr. Gale, and I am sure that under your firm hand we will make good progress this afternoon. The financial assistance scheme offers help to certain people whose defined benefit occupational pension schemes have not provided them with the pension that they expected. The draft regulations contain further changes to bring about the reforms to the FAS that we announced last December.
Members will recall considering regulations in May that included changes that are now being implemented. Those regulations contained measures to raise the assistance level from 80 to 90 per cent., and to begin payments from an individuals normal retirement agethe scheme agerather than age 65. I am delighted to say that increased FAS payments at 90 per cent. began to be made on 21 June, and at the end of June we had made 1,257 top-up payments at the 90 per cent. level. The draft regulations before the Committee include significant measures that were not included in the previous set of regulations, because the policy needed more development and consideration. Earlier this year, there was general agreement with Opposition Members and stakeholders that the changes announced last December would be delivered in stagesthe simplest and quickest were delivered in the first set of regulations, and we now move on to the second set, which are more complicated.
I shall deal with the first part of the regulations, which deals with early payments for members unable to work owing to ill health. The draft regulations provide for ill-health payments for members of FAS qualifying schemes, where the scheme manager is satisfied that those members are unable to work due to ill health and are likely to continue to be unable to do so until their NRA. The ill-health payments, and interim ill-health, payments, where the qualifying scheme has not yet wound up, can be made from five years before a members NRAfor example, if the NRA is 60, eligibility would begin from age 55.
That goes beyond the commitment made in December 2007 to provide help to members from a blanket age of 60, and it is the result of consultation. We are continuing discussions with stakeholders on the ill-health provision and connected issues, such as the age from which ill-health payments can be paid. However, it is important that this particular FAS enhancement is in place as soon as possible, so that we can get help to the people who will
Should the Government wish to make further changes to ill-health regulations, there will be the opportunity to do so in the further regulations necessary to cover all the measures announced in December last year. As far as health is concerned, the regulations will take us so far, but we are prepared to talkindeed, we are talkingto the stakeholders to see whether we can further extend some of the provisions. The regulations also extend the FAS to members of schemes that wound up underfunded with a solvent employer, and contain provisions to bring certain pension schemes with solvent employers into the FAS. The assets review by Andrew Young found that there are about 162 schemes with solvent employers whose members have suffered pension losses similar to those of FAS qualifying schemes. The review stated that
there is no reason to expect the employers concerned to support these underfunded schemes.
Our intention is to enable pension schemes that started winding up with a solvent employer after 1 January 1997, but before the employer was required to meet the full buy-out cost, to qualify for the FAS.
The Government expect trustees to recover any debt they can from the employer before turning to the FAS for assistance. With that in mind, the regulations require the employer to pay any debt to the scheme at the start of winding-up or to have had no debt to pay on winding-up. However, following the consultation on the draft regulations, we have included a provision to allow the FAS scheme manager discretion to treat the debt as having been paid if an appropriate portion was paid. Our intention is to provide for the inclusion of schemes in which, for example, the employer paid a significant majority of the debt owed but the trustee did not consider it worth while to pursue the remaining debt. It is absolutely right to expect schemes to first pursue any debt owed by the employer before coming to the FASessentially to the statefor assistance. But, where trustees have taken reasonable steps to secure the recovery of the debt, we want to give the FAS scheme manager appropriate flexibility to include those schemes.
The Pension Protection Fund will become more closely involved in developing the new FAS arrangements. I mentioned earlier that we are making changes to the FAS scheme in phases. One of the remaining changes, to be included in draft regulations later this year, concerns the transfer of assets from FAS-qualifying schemes to the Government. To prepare for that and to facilitate the handover of assets, so that it happens as smoothly and efficiently as possible, the draft regulations contain provisions for the PPF to be involved in the process of managing schemes through the wind-up process to a stage at which the schemes are in a position to hand over their assets. The regulations also contain a provision for the PPF to advise the FAS scheme manager in relation to FAS on the scheme managers request.
I hope that Members will agree that the expertise that the PPF has developed since it came into being in 2005 will be invaluable in this task. The hon. Member for Eastbourne has raised that point on a number of occasions. We continue to discuss with the PPF exactly what its role is in delivering the final FAS scheme. Because the
We have taken the opportunity to speed up the process of making initial FAS paymentsthose payments are made before the final FAS payment position is knownby removing the need for trustees to apply for them. The draft regulations retain the FAS scheme managers discretion to make initial payments, but he will no longer need to receive a request from the trustee to do so. We are also reducing the period allowed in existing regulations for trustees to supply scheme data from six months to three months and introducing appropriate time scales for trustees to produce information concerning the new ill-health payments.
The regulations remove the option for those eligible for FAS to use their remaining asset share to buy back into the state additional pension scheme. The aim is to simplify matters by removing a step that not only delays the winding-up process but offers uncertain outcomes for members. We are replacing that uncertainty with a guaranteed amount from the FAS. The Young review of assets noted that removal of deemed buy-back would be consistent with PPF policy. However, if someone was offered the opportunity to buy back before the commencement of these provisions, they would still be able to take that option if they wished to do so.
As more than 1,200 people are already being paid assistance of up to 90 per cent. of the pension that they expected, I hope that members of the Committee will agree that we are making good progress on making the changes announced in December. For that progress, I want to thank all those who continue to engage with the process of change and who share the Governments determination to see these reforms through to a successful conclusion. I include, of course, the trade unions, which campaigned on the issue, the Pensions Action Group, hon. Members who are part of this Committee and those who are absent.
I hope that the Committee will understand my wish to mention the staff at the FAS operational unit who have worked hard and shown a great commitment to putting the changes into practice, particularly to ensuring that we have been able to make the 90 per cent. payments as quickly as possible. I extend my thanks to them. This second set of regulations will deliver further reforms, to the benefit of many pension scheme members. We intend to consult later this year on further draft regulations to deliver the full package of changes. The regulations are compatible with the European convention on human rights and I commend them to the Committee.
Mr. Nigel Waterson (Eastbourne) (Con): May I, too, welcome you to the Chair, Mr. Gale? You will ensure that we deal with the business expeditiously and efficiently.
This set of regulations is the latest staging post in this Governments long and welcome retreat from their previous
At this stage, I would like to express a particular concern that perhaps the Minister can deal with. I believe that I am right in saying that the third elementthe regulations that he flagged up in his opening speechwas originally to be implemented by the end of this year but now, according to the explanatory memorandum, will be laid in spring 2009. I would be grateful if he could give us some reason for that significant delay on top of the previous delays, and if he could give us a feel for how definite that date is for their introduction.
We on this side welcome certain aspects of the regulations, of course; for example, the fact that they tackle the major issue of ill health, although we have some significant concerns that I shall return to in a moment. We welcome the measures to speed up payments and the gathering-in of pension fund assets, following the Andrew Young report. We welcome what the Minister said about solvent wind-ups, and we also welcome the increasing, although belated, role of the PPF. As the Minister kindly acknowledged, that was something that we mentioned a long time ago.
Therefore, it may come as no surprise that, unless the Minister provokes me for some reason, I do not intend to invite my hon. Friends to vote against the regulations. Although we have some concerns, which I shall come to in more detail, anything that helps to give more compensation to more people has to be welcome.
Now we come to the buts. I will deal first with the question of ill health, which is predominantly covered by regulation 17. If those people had continued in their scheme in the usual way as they might have expected, many of them would have received an ill-health pension some years ago, as soon as they became seriously ill. Through no fault of theirs, however, the schemes went into wind-up and they lost their eligibility for payments. Despite being always assured that their pensions were safe and protected, they have been deprived of their ill-health pension rights. They do not have any life cover or ill-health insurance, as that was all meant to be dealt with in the pension scheme.
As the Minister has explained, the regulations for FAS include such people only if they are already five years away from normal retirement age or scheme pension age. Secondly, the regulations say that they cannot get any arrears for the pension that they would have received from when they became ill if that was some years prior to the five-year cut-off date. Thirdly, as we have been informedwe might not have heard it from the Minister, but it is in the explanatory memorandumthe payments are actuarially reduced. I understand that to mean that they are reduced in line with actuarial tables because the recipients receive the money earlier than they otherwise would have. From that end, things are being evened out, but there is potential for significant unfairness, as a result of the way that regulation 17 in particular is drafted, in relation to claimants who became ill much earlier in their working lives.
The basis of compensationas envisaged in the PPF, and now in the FASis that people should be put in the position in which they would otherwise have been had the problems not arisen, subject to the cap and other issues on which I am happy to concede. But that does not appear to be happening for this particular group of
There is no suggestion that interest should be paid on late payments of FAS money, so any delayed payments will benefit the Treasury significantly. That raises another question about the cost of FAS. Paragraph 7.7 of the explanatory memorandum claims that the cost of the package is £2.9 billion in net present value terms. Surely, that figure cannot be right. It does not reflect the fact that basic rate tax, at least, is being levied on all payments, so the net figure should be lower. Neither does it reflect the fact that, when assessing arrears, the FAS deducts any amounts that the member has received in pension credit or other benefit payment in the past few yearsagain reducing the net cost. Nor does it reflect the fact that the Treasury will, as a result of the Young review, be gathering nearly £2 billion of pension fund assets from the remaining failed schemes that have not yet been committed to bulk purchase of annuitiesso there will be further gains, as highlighted in that review. It would be helpful if the Minister set out the true net cost of the revised provisions. I do not want him to do a calculation on the back of envelope, so I am happy for him to write to me and other members of the Committee.
There is an issue of principle in all this: I do not think that the Government have yet acknowledged the February 2008 verdict of the Court of Appeal on this matter. They decided not to pursue a further appeal to the House of Lords, but there must be a point at which they should issue a formal apology to the campaign groups and all those who are affected by their position on the FAS.
I have a question about deemed buy-back, which is one of the best-kept secrets of the pension world. In some caseswith a years service and if everything else were correctit could produce significant compensation for people who were caught in a pension nightmare. One effect of the regulations is to remove the availability of deemed buy-back for people going into the FAS, except when they had already started the procedure some time before. So, will anyone be any worse off as a result of the option being withdrawn? Will the Minister deal with that for me?
I have already said that it is helpful and beneficial that more and more FAS functions are being drawn into the PPF, which on any view has the superior experience of, and expertise in, dealing with these matters. But is it not now time for Ministers to decide that the right way forward, as we have advocated for a long time, is to wind up the FAS altogether and fold it entirely into the PPF administration?
I have a few other points. I have already dealt with the actuarial reduction point, but will the Minister give us some examplesif not now, in writingof the reductions for people suffering from ill health and, therefore, being paid up to five years prior to their normal retirement age? Paragraph 7 mentions the possibility of FAS assistance being commuted to a lump sum. It might be a valuable flexibility for some people, but it reminds me to return
I had a practical query. The notes make it clear that Ministers desire is not to produce a whole new bureaucratic structure to work through when people are genuinely terminally ill, or ill and unable to work as a result. However, there is a trade-off between the laudable desire for simplicity and a lack of red tape, and the fact that it puts quite a burden on the FAS scheme managerthe Secretary of Stateto decide whether people are genuinely terminally ill or not able to work due to ill health. It would be interesting to hear from the Minister how he expects the scheme to work in practice. Paragraph 7.20 suggests that it would simply require a letter from a doctor or evidence of entitlement to relevant benefits, but one wonders to what extent some cases might be more troublesome, because they might depend on a mental illness or on a stress-related problem, rather than on a physical condition.
We very much welcome the inclusion of companies involved in solvent wind-ups; that is good news. However, it might help if the Minister sent us or made public a definitive list of those schemes that are included in the definition, because colleagues have corresponded with me on the uncertainty about whether one or two schemesI cannot remember the names off-handfall into that group.
I shall not go into great detail about the attempts to speed up the process. Heaven knows that the FAS has not been the fastest, although it seems to be speeding up, and anything that can short-circuit the process must be good. One small footnote at the end of the explanatory memorandum states that
the impact of the instrument on the public sector is negligible. The additional costs of increased amounts of payment are included in the cost of the total Government commitment to the FAS.
I have already dealt with the overall question of the genuine net cost. Will the Minister tell us what the additional cost of these regulations will be?
Finally, we had the coincidental benefit of seeing the annual report of the financial assistance scheme a few days ago. It gives a series of statistics for the end of March this year. It would be useful if the Minister could update us on the number of schemes that have successfully notified their details to the FAS, the total number of beneficiaries, how many are in receipt of annual and initial payments, and the total amount being paid out by the FAS. If I remember rightly, after the last Committee on this issue, the Minister wrote to hon. Members with an up-to-date summary of those statistics.
The report makes much of the Mercers report into the running of the FAS and seems to over-egg the pudding by making much of the finding that
the process of gathering data to operate the Financial Assistance Scheme is fit for purpose and is managed satisfactorily.
That does not sound to me like a glowing endorsement of the FAS. We know that it has had serious problems and that it has been painfully slow. I return to my earlier point of whether now is the time simply to scrap the FAS and have the whole thing run by the PPF.
Despite those few minor and not so minor criticisms, we broadly support the regulations and look forward to debating the next set of regulations as soon as possible.
Mr. Ian McCartney (Makerfield) (Lab): In normal circumstances, Back-Bench Members of the Government do not speak in these debates. I had no intention to do so today until I heard the hon. Gentlemans points.
I make this point only for historical purposes. I was Minister for Pensions when Allied Steel and Wire went to the wall. I was part of a campaign to get the trade unions in here when, under the Conservative Government, Leyland DAF went to the wall and left tens of thousands of workers without any pension entitlements. On that occasion, emergency legislation was brought in by Lord Heseltine, who was a Member of this House at the time, to prevent workers from seeking access to those pension funds and to protect administrators in utilising the pension funds as they wished. The funds were not reallocated to their rightful owners, the pensioners, on the basis that it was a moral hazard.
We have always believed and still believe that there is a thing called an immoral hazard, such as when people save for more than 30 years for a pension fund and it is taken away by administrators or by a company that deliberately goes bust so that it does not have to meet its requirements. This is the first Government to take a stance about the immoral hazard. Within days of ASW going down, I brought the workers to the Department. As the law stood, there was nothing that we could do to assist them, but we met them and a group of MPs and gave them a commitment that we would have a public consultation and try to find a way to ensure that those workers received entitlement to their pensions.
That has taken some time. The hon. Member for Eastbourne said that it was painfully slow. However, those workers would have received nothing from their pension schemes if it had not been for the intervention of the Government in changing the law. They were going to receive nothing because their pensions had been taken away from them by their employers. The change in the law is significant. I thank the Minister for sticking to his guns. We have put £12.5 billion into the scheme, whereas £12.5 billion was taken out of it under previous Governments by the mis-selling of personal pensions. That is a dramatic change around. We have found £25 billion to recompense people who were badly injured by the mis-selling of pensions or the failure of their employer to make good the requirements on them.
The hon. Member for Eastbourne raised issues about ill health and interim health payments. That is always a difficult area in pension reform. As I understand it, the proposals in the regulations are similar to what would happen under normal circumstances, whether under an
Jenny Willott (Cardiff, Central) (LD): Thank you, Mr. Gale, for your forbearance with my tardiness this afternoonFirst Great Western proved itself to be less than great.
Overall, the Liberal Democrats support the regulations. However, we also have serious concerns about some of the details. I have been involved in this issue for a number of years, including before I was elected to Parliament. The right hon. Member for Makerfield mentioned Allied Steel and Wire, which I believe involves the largest group of pensioners affected. It is based in Cardiff, and many of those affected are constituents of mine, so I have been very interested in and have cared strongly about this issue for quite a long time. It is good that progress has been made and that some recompense is being made to pensioners who have struggled over a number of years to raise the matter. I think that they are satisfied to some degree that recompense has been made, although a number of people share concerns about the regulations before us.
The first issue that I want to raise has been flagged up already: allowing people to claim and receive ill-health payments within five years of their scheme pension age, rather than according to the rules of their scheme. Under some schemes, into which people will have been paying for decades in a number of cases, there was no such rule that claims could be made only within five years of retirement age. That has led to some strange anomalies. For example, under the regulations, a 56-year-old with a scheme pension age of 60 could access ill-health benefits, but a 59-year-old with the same cause of ill-health and a scheme pension age of 65 would not be eligible for support. That does not seem very fair to a large number of the people who fall into those categories. The Government say, in the explanatory notes, that five years is appropriate, but given that many schemes would have allowed for such benefits earlier, and that it is what people pay towardsaccording to the rules of their schemefor a number of years, I would be grateful if the Minister explained why the Government feel that five years is appropriate and whether they considered accepting the rules of the individual schemes.
The hon. Member for Eastbourne raised the issue of actuarial reductions. I accept that, if someone draws down a pension earlier, it is normal practice to reduce it actuarially to ensure that it is a fair payment. However, in a number of cases, those in the category that we are talking about will be terminally ill, and in all cases they will be very ill and unable to work, and therefore likely to have reduced life expectancy. A number of the schemes did not have provision to reduce for early payments, so I
Another significant area of concern is about the backdating. The regulations state that payments will be made from the latest of the date on which the regulations come into force, the day that the FAS is informed that a member is suffering ill health or the day on which the scheme member reaches the five years before their normal retirement age. For normal pensioners who have been suffering ill health prior to 2008, and prior to the implementation of these regulations, their payment will be backdated to when they became eligible for it. It seems very unfair that the same logic is not applied to those who are suffering from ill health, particularly since a number of them have suffered deteriorating health circumstances because of the stress and financial uncertainty that they have been experiencing while they wait for the regulations to come through.
Will the Minister tell us how much it will cost to backdate the payments? The Department must have estimates of how many people have become ill at certain points in the process. Will he give us an indication of the additional cost of backdating the payments for such people?
My next point involves solvent employers. Along with the hon. Member for Eastbourne, I am pleased to see that progress is finally being made. It is an issue that has concerned many people, so it is good to see that progress is being made.
A report today said that most solvent employers will be enrolled in the financial assistance scheme by the end of July. Will the Minister confirm whether that is the case? Also, will he give us the expected date for the remaining schemes to be included? I understand that some will have to wait for Royal Assent on the Pensions Bill.
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