Mr.
O'Brien: Will the hon. Lady repeat her last point? I did
not quite understand
it.
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. 5.9
pm
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 we’d
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
consequences—complex pensions rules can have all sorts of
implications, particularly when they interact with complex scheme
rules—and 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
said that I am still happy to talk to people from the various groups
about a further ill-health provision. I have taken the view that it is
best to introduce these regulations rather than delay things any
longer, so that we can at least help some people now. The reason for
further delay—we cannot do things as quickly as we had
hoped—is that some serious issues have been raised by various
groups. We are considering those issues seriously, but they are not
simple; they are quite complex. We have also been considering taking
assets from pension schemes in a range of different circumstances. It
is not as simple as copying everything over as though it were a PPF
process. In effect, we must create new processes. 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
sinister—on the contrary—and 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
Government’s 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
people do not expect the benefits to be reduced with early payment. That
issue has been raised with me, so some people are concerned about
it.
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 applicant’s 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
question—I 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 intended—let me caveat that
slightly—to 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 way—on lump sums and other
things—then 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
Majesty’s 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 individual’s 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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