Draft Financial Assistance Scheme (Miscellaneous Amendments) Regulations 2008
Jenny Willott: Certainly. The talk today is of solvent employers being included in the financial assistance scheme by the end of July. However, not all solvent employers will be, because some schemes might be waiting for Royal Assent on the Pensions Bill. I was wondering whether the Minister could clarify that.
My final point, which has also been mentioned by the hon. Member for Eastbourne, is on the timetable and the costs. Originally, the Government said that the FAS changes would be implemented by the end of 2008. The explanatory notes say that the final set of recommendations will not come before the House until spring 2009. That has led to a concern that the Government lack the sense of urgency that many of the affected people feel. Will the Minister tell us why the timetable has slipped and will he confirm that the changes will happen as soon as possible because I know that a number of people are worried?
On the issue of costs, which has been raised by the hon. Member for Eastbourne, the explanatory notes say that the cost will be
£2.9 billion Net Present Value.
I understand that Lord McKenzie in the other place said that the net cost would be about a third to a quarter less, which would presumably make it around £1.9 billion to £2.2 billion, depending on where in that range it fits. The cost issue has been one of the most contentious elements of the setting up of the financial assistance scheme, and every time it has been raised over the past few years, by either the Conservatives or the Liberal Democrats, the Government have said that it costs too much. Therefore, will the Minister tell us what the net cost will be? The range that he gives is very broad, so will he give us a more specific amount?
Overall, I am glad that the Government are acting. After a slow start to the financial assistance scheme, it is good to see that payments are being processed much more quickly now. However, there are a number of concerns about the impact on vulnerable groups. After the Minister has clarified those issues, I will be glad to support the regulations.
Mr. O'Brien: Hon. Members have raised a range of issues, and I will see whether I can deal with them one by one. Let me start with the reason for the delay raised by the hon. Members for Cardiff, Central and for Eastbourne. We tried to get on and deal with the straightforward issues quickly. Following initial consultations on ill health, we were able to extend some of the provisions. Rather than going back to the age of 60, as in the original proposal agreed on 17 December 2007, we took the view that we could go back to five years beyond the normal retirement age. We received representations that some people would be detrimentally affected, so the consultation required us to do quite a bit of work to introduce the regulations.
When we consulted on the regulations, people came forward to say, Actually, there are some people beyond that whom wed like you to cover. We said to those who made such representations that we were happy to engage in further discussions on the issue to see whether there was a way of bringing in a limited number of people with serious illnesses going back more than five years before the normal retirement age. I do not know whether we can do so, and I am making no commitment to do so, but I am prepared to discuss it.
That is just one example of how, having set out what we thought was a series of straightforward tranches of regulations, we have faced some complex issues. We can either choose to go ahead with things as we said we would initially, or we can engage seriously with those making representations who have raised serious issues that deserve proper discussion. However, if we have that discussion, it will require us not only to bottom out the nature of those issues but to identify in discussions within government whether we can address the unforeseen consequencescomplex pensions rules can have all sorts of implications, particularly when they interact with complex scheme rulesand introduce another set of regulations.
We have found that the more we delve into the matter, the more complex it gets. For example, I am introducing regulations relating to five years, even though I have
That is why we have introduced regulations to deal first with some of the easy things. We thought, for example, that we were introducing some fairly simple health regulations today, but they have turned out to be more complex than we expected, and we are hedging our bets a little in terms of how quickly we will be able to introduce the further regulations. They will need to be tightly drawn, because public expenditure is at stake. That is the reason for the delay. It is nothing particularly sinisteron the contraryand there is certainly no lack of urgency. Far from it: I would rather resolve the matter completely and get it out of the way as quickly as possible. From the Governments point of view, that is how we would like to proceed, but it has not always been as easy as we hoped. On the more general issue of ill-health payments, the hon. Members for Eastbourne and for Cardiff, Central and my right hon. Friend the Member for Makerfield asked a number of questions.
On the question of why ill-health payments are not available from an earlier age, I have already indicated that we initially said 60, but have now moved to five years beyond the normal retirement age. In some cases, if the normal retirement age is 60, that availability can go back to 55. We are prepared to talk further and see what can be done. We chose five years because those discussions initially seemed to cover most of the people we thought would be in difficulty, and the initial representations led us to believe that that would be the case. It now transpires that a small number of people might not be covered, but it is not much more than a handful. We are therefore looking at whether we can do something for those people. Five years looked like the right figure, but it might not be, so we are prepared to look at that again.
The hon. Member for Cardiff, Central asked about actuarially reduced payments. If a payment is for less than six months, it would not be actuarially reduced because it is not worth it when payment is being brought forward for that period of time. Beyond that, actuarial reduction would be normal under a scheme in which payments are brought forward. I am not sure whether anyone has complained greatly about that, and I would be a little surprised if the hon. Lady has heard from people who are upset about it. I hope that they will accept that ill-health payment and other payments that bring pensions forward often result in actuarial adjustments. If the hon. Lady looks at her own pension scheme in the House, she will see that that might be the case.
Jenny Willott: I am aware that most schemes actuarially reduce sums if one takes early payment, as I said earlier, but I understand that a number of schemes have been included in the FAS for which that is not the case. Some
Mr. O'Brien: I entirely accept the fact that the hon. Lady has heard those representations, and I will look at that. We seek to operate the financial assistance scheme with clarity so that the same rules are applied to all organisations. There are two ways in which that can be done: one is to say that the old scheme rules, whatever they are, will be applied; and the other is to say that we will try to have some fairness between those who are in the financial assistance scheme and deal with them on a fairly standard basis so that there is a relatively level playing field.
We want to try to ensure that we deal with people fairly. With regard to people with a limited life expectancy, for example, there is no actuarial reduction. For FAS members who have a life expectancy of less than six months, the reduction factors will not make any allowance for impaired life expectancy since it is intended to require members who apply for early payment to demonstrate only that their ill health makes them unable to work, not that they have impaired life expectancy. There is already provision within FAS for members of any age who are terminally ill to receive access to fast payments. Those payments are paid in full and without reduction for the obvious reason that people with limited life expectancy cannot make claims later on. That is basically where we are. I will have another look at the issue that the hon. Lady has raised, but we need to deal with it by treating people in the FAS scheme on a level playing field.
I was asked about those schemes under which there is a certain kind of procedure for people to receive ill-health payments, and what the situation is after the company has gone bust or can no longer operate. Just because the company has gone bust does not mean that the pension scheme has gone bust. It is the case that trustees will, by and large, make reduced payments now for people who have ill-health conditions. In the case of schemes into which people have made payments, payment will simply continue when they enter FAS.
We are telling trustees, If you have someone who wants to make an application for early ill-health payment, let them make it. You go off and make the decision that you need to make, under your scheme rules. Indeed, we have encouraged trustees to do so if they have such cases. Some trustees have done so; others are much more cautious. We have always had the problem that trustees take different views. Frankly, from our point of view, if the scheme has already taken a decision before it comes into FAS payments, that is better for us, because we will not have to make that decision.
If we have to make a decision, we will look at the evidence presented by the applicants doctor. The FAS manager might have queries about the evidence that is presented, but in many cases, there will be no doubt about the matter. If someone has a serious illness, the doctor will have certified that that is the case and the matter can be resolved. However, the hon. Member for Eastbourne rightly says that there might be contentious issues in relation to stress or mental illness. The FAS scheme manager might well have to look at that issue and consider what additional evidence he needs in relation to ill health.
Those are some of the issues that I wanted to mention in relation to ill health. My right hon. Friend the Member for Makerfield asked who should give an indication of illness. Members are likely to have to continue to prove ill health until normal retirement age. A member can apply directly to the FAS scheme for early reduced payment on the grounds of ill health, and they can provide any evidence that they believe would support their expectation. For want of a better description, we are aiming for a light-touch approach to consideration of the evidence. Providing the evidence is fairly straightforward, and we do not intend to put members through an aggressive health check ourselves. The FAS scheme manager will determine whether qualifying criteria are met and if the evidence is acceptable. Members will have a right of appeal and will be able to challenge a decision made by the FAS manager, if they feel it is inappropriate.
Mr. McCartney: I apologise to my hon. Friend for this questionI am not asking him to give an answer today unless he can do so. Will there be a recall provision? In most of the private sector scheme cases that I have dealt with as a Member of Parliament, if someone took early retirement, a recall was made to the individual concerned. Of the cases that I dealt with, in two instances the recall resulted in an allegation from the trustees that there was an improvement in health. The ill-health provision has been withdrawn, and that has had a significantly detrimental financial effect on the members concerned. It is important that this is a light-touch regime because the schemes that I have dealt with have been far from light-touch.
Those schemes were complex, and there were difficult issues to deal with to get early retirement on the grounds of ill health, whether in the public or private sector. If the scheme is light-touch, will the Minister give us an indication of whether there will be a recall provision or if there will be a life-time award in cases of early retirement on the grounds of ill health?
Mr. O'Brien: It is not intendedlet me caveat that slightlyto have such a recall provision. Bearing in mind that we are not running an ongoing scheme, many of the people involved will come into FAS for a limited time. In a sense, we are not in the position of other schemes, so we have taken the view that we do not intend to operate a full recall provision. The caveat that I would put on that is that if any evidence is presented to us that shows that a fraud may have been committed, we would look at it with a view to ensuring that the Exchequer and the provisions in the scheme are protected. Hopefully, my right hon. Friend will be content with that situation.
I was asked about the overall cost. Tax will be levied on payments in the normal way if they were PPF payments or FAS payments. I have had discussions with the Treasury about those matters and we have an agreement that the provisions will be looked at and backdated so that people can make the payments in the way that best suits them. They will have the option of making an application to the taxman to see whether they can reclaim certain tax provisions and thus they can backdate if they choose. Some of them may decide that that is not the best way of doing things for their own tax reasons.
We looked initially at whether we should just do it. Some suggested that it was the best way, but there might have been some losers. In the end, we thought the best way to operate the scheme was to allow individuals to pay tax in the normal wayon lump sums and other thingsthen they could make an application to the taxman and have the tax backdated. All FAS payments are taxed at source using the pay-as-you-earn tax system, using codes operated by Her Majestys Revenue and Customs. Members can have their payments for a past period taxed in the relevant years and can make such a request to Revenue and Customs, although any adjustment to their tax position cannot take place until after the end of the tax year in which arrears were paid. That may result in a refund or a tax bill, depending on the individuals overall tax position for the years in question.
The PAYE system operates on a cumulative tax basis, which is designed to spread tax deduction from periodic payments evenly across the tax year where a one-off payment results in a large tax deduction in a particular pay period. The cumulative nature of PAYE will gradually refund any excessive tax deductions to date in subsequent pay periods. However, if a one-off payment includes amounts relating to a previous tax year, because PAYE operates on an annual basis for a continuing source of income, any adjustment to attribute payments for past years to the tax years to which they relate needs to take place after the end of the tax year in which the payment was made.
I hope that that helps to provide reassurance to some extent. Most of the people to whom we have been talking understand the provisions. We will send them letters that they can send to the taxman themselves. That will enable the tax authorities to look at the letter, know that it is a fast case and that they will have to apply the rules on attributing tax to the relevant year, if that is requested by the taxpayer. In terms of amounts, obviously tax will be paid. I have not read that particular provision, but I assume that the reference by my noble Friend Lord McKenzie was to the net cost being net of tax. By its nature that will be an estimate. I will check what the figure given by my noble Friend was.
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