The Minister of State, Department for Work and Pensions (Angela Eagle): I beg to move,

Many here will be familiar with the financial assistance scheme, which provides assistance to qualifying members of qualifying pension schemes who face pension losses if their scheme winds up underfunded. Since it was announced in May 2004, the FAS has been extended to provide greater assistance to more people. In December 2007, the Government announced a package of enhancements that will mean that those who are entitled to assistance will receive payments broadly equivalent to the compensation paid by the Pension Protection Fund. They address a key concern of those who have campaigned on behalf of people who lost their pensions before the PPF was introduced.

We have introduced regulations so that all eligible members can receive 90 per cent. of their expected pension from their normal retirement age, and we have extended the FAS to include members of schemes that wound up underfunded although their sponsoring employer was still solvent.

Steve Webb (Northavon) (LD): The Minister said that there is a package of enhancements, but there is no impact assessment for the regulations. Could she tell us by how much the regulations, assuming that they are an enhancement to the FAS, will increase the cost of the FAS?

Angela Eagle: My understanding is that there is not an impact assessment because the cost is under the de minimis of £5 million. The hon. Gentleman will know that this is the fifth in a batch of six sets of regulations, and I would ask him to take account of the priority of the package rather than just the regulations that we are debating today when he is thinking about the cost.

From memory, the overall cost to the public purse of providing the protection of which these regulations are a part is £3.6 billion at current prices. It is not an insubstantial amount of money, but when we finally finish with what are known as the winter regulations—the final batch of this assistance, I hope—we will have established a system that will help 140,000 people who otherwise would have had very little protection at all.

The scheme has paid more than £64 million gross to some 12,000 people so far. Without the FAS, many of those members would be receiving significantly reduced or even no pensions at all from their schemes. In a world where it is not uncommon to spend one third of one’s life in retirement, it is important that this extra assistance is available.

In the spring, we consulted on a set of draft regulations which implement further elements of the 2007 announcement and make changes to the FAS administration. It is those regulations that I now bring to the Committee. They complete the enhancements to the amount of assistance payable to those whose schemes wind up in the normal way. We will shortly begin formally consulting on the final batch of regulations—the winter batch—to complete the implementation of the extension to the FAS that was announced in December 2007. They will cover the arrangements for transferring remaining scheme assets to the Government and for making the payments associated with them, such as provision for a lump sum where a member’s asset share allows.

These regulations will do several things that I will canter through quickly, if you will allow me, Mr. Caton. They will allow the FAS to pay a surviving partner who was neither married nor in a civil partnership with the member, but was living with the member on that basis, if a scheme would have done so and once certain conditions are met. They will also allow payments to be made to certain children and young adults who were financially dependent on the deceased member.

On 1 January each year, assistance relating to scheme rights accrued after April 1997 will be increased in line with the retail prices index, capped at 2.5 per cent. Assistance is paid from a member’s normal retirement age. The draft regulations provide for the amount of assistance to reflect where a member has built up pension rights to a different age. If that different age is earlier than normal retirement age—say 60 rather than 65—members will receive an increased amount of assistance when they reach their normal retirement age.

In 2007, we more than doubled the maximum amount that a member can receive from their scheme and assistance, from £12,000 to £26,000 a year, which is known as the cap. The draft regulations will allow the limit to increase annually in line with the retail prices index from April 2007, ensuring that the cap keeps pace with inflation.

I now come to the future operation of the FAS. At present it is administered very well by staff at the Department for Work and Pensions. However, in the future the FAS scheme will be undertaking broadly similar functions to those of the board of the Pension Protection Fund. Therefore, it is appropriate to have both systems managed by that board.

Mr. Nigel Waterson (Eastbourne) (Con): Before we leave that point, if the Minister believes that the scheme has been run so well by the staff in York, why on earth are we putting it under the aegis of the PPF, which is what we have wanted for many years?

Angela Eagle: The changes, which will take effect by the time the final batch of regulations are in place, mirror more closely what the PPF does. It just seems a sensible administrative change. It is not an adverse comment on the way in which the DWP has been administering the scheme thus far. It just seems a sensible thing to do.

The draft regulations confer responsibility for managing the FAS on the board of the PPF. To provide continuity, staff on current financial assistance schemes will be seconded for a temporary period to the board.

David Tredinnick (Bosworth) (Con): Did I hear the Minister say that staff would be seconded from abroad?

Angela Eagle: No, from the board. I am sorry, I must improve my diction. Perhaps it is just that time of the afternoon. I did not say from abroad, but from the board of the current financial assistance scheme. There is no involvement with foreign pensions or foreign pensioners.

In conclusion, I hope that hon. Members will welcome these latest improvements to what is already a good scheme. They will deliver substantial and significant improvements to the way in which assistance payments are delivered, increasing the range of people receiving FAS payments and annually increasing payments relating to post-1997 service in line with price rises in the real economy.

The changes in the draft regulations offer significant improvements for many FAS members. As ever, the Government continually seek to strengthen existing pension provision, encourage saving for retirement and provide protection to scheme members. The draft regulations will deliver further improvements to that protection that is in place. I have also signed the declaration that, in my opinion, the regulations are compatible with the European Convention on Human Rights. I therefore commend them to the Committee.

Mr. Waterson: It is a pleasure to serve under your chairmanship, Mr. Caton. This has been a long haul. On 14 May 2004—when I was but a lad—Ministers were dragged to the Floor of the House to concede that there had to be something called the FAS because they faced defeat by a combination of Opposition parties and their own rebels. What we have had since then is very different from what the Minister has described. The Minister’s opening remarks suggest that it was the Government, out of the goodness of their heart, who decided that we needed the FAS when, in fact, they resisted it bitterly. Having set it up, it has been like drawing teeth ever since to get more and more concessions out of them. I do not personally blame the Minister because I know that she is new to the job. However, she needs to read her briefing with a little more scepticism. Again, the concessions were wrung from the Government over a period of time. We did not start out with the notion that the FAS should be the same, more or less, as the PPF. Quite the opposite: it was very much the poor relation. I am afraid that the Minister’s grasp of recent history was highlighted by her answer to a question the other day at Department for Work and Pensions questions. She stated:

It is worth remembering that, almost without exception, all the scheme failures occurred after Labour came to power in 1997.

The Minister went on to say that the Government had made various extensions, which she referred to in her opening speech today, and stated:

Damned right it is more than they promised to do, because the FAS as it was originally created would have produced pathetically low benefits compared with the PPF. Ministers were at huge pains to say that it was not a compensation scheme but an assistance scheme.

As if to underline the point, they set the FAS up at the other end of the country, in York, with a brand-new office run by DWP officials. It was not under the aegis of the PPF. Again, it is a bit much for the Minister to claim some great leap forward in bringing the FAS under the aegis of the PPF. My party and, I believe, the hon. Member for Northavon, have been on about that for some time. The PPF runs things reasonably competently and should have been involved in running the FAS from the start. There was no need to reinvent the wheel in the first place, resulting in huge cost and massive delays in getting help to people who desperately needed it, were it not to underline the fact that, originally, the FAS was a wholly cheapskate scheme, compared with the PPF.

David Tredinnick: I am listening with great interest to my hon. Friend. I hope that he will not pass by the fact that the pensions crisis in this country is, of course, very much the child of this Labour Government.

Mr. Adam Ingram (East Kilbride, Strathaven and Lesmahagow) (Lab): Rubbish.

David Tredinnick: The right hon. Gentleman shouts “Rubbish,” but the determination of this Government to milk pension funds for purposes of general taxation and their attitude towards pensions and pensioners generally have been absolutely disgraceful.

Mr. Waterson: My hon. Friend will not get an argument from me on that point. He is absolutely right, but I suspect that you would call me to order, Mr. Caton, if I were to go too far down that route. However, before we get into the nitty-gritty of the regulations, we need to be quite clear about the background. This is not some munificent Government deciding out of the goodness of their heart to increase the benefits payable. It has been a long, bitter process.

Dr. Stoate: Do I therefore take it that it is Tory policy massively to increase spending on the scheme? We need to know.

Mr. Waterson: We have always taken the same view as the Pensions Action Group and people such as Dr. Ros Altmann and others that it was simply unfair that people under the FAS should have a different level of benefits—more or less half, on average—from those under the PPF simply because their problems happened to arise historically before the PPF came into effect.

We are not promising any huge increase in public spending. We are simply saying that there has been a long, bitter battle, in which I do not think the hon. Gentleman was particularly involved, to get us to where we are now, which is where we should have been in the first place. In the meantime, people have died, and people have endured great personal suffering.

Having got that off my chest, these are detailed regulations. I shall follow the Minister’s wise approach in not ploughing through them in huge detail. There is much that is welcome, and much of the content consolidates attempts in previous regulations to get the scheme right. As the Minister promised, there will be further regulations later in the year.

There are significant benefits for people. The regulations will allow for accruals at different ages to be treated differently from the existing calculation, which was a bit inflexible for some people. The extension of the categories of people who can receive survivor payments is important, because there were a few—not many, but a few—cases of significant unfairness and hardship. Another example is that the regulations allow for future increases in the amount of the annuity to be reflected in the assistance calculation. That makes a certain amount of sense.

I have already touched on the issue of who should run such matters. As I said earlier, the Government decided to set up a new unit in York that was completely divorced from the PPF. At that time, the PPF had built up a considerable body of expertise in how to deal with such issues, to get the information from the schemes, to do the calculations and, crucially, to get the benefits, or the compensation, as quickly as possible to people who needed it the most. For a very long period, the FAS had a dismal record of getting the claims agreed and paid. Over and over again, we said that the answer was to get the PPS to run the FAS. I am sure that the only reason why the Government did not go down that path was that that would have highlighted the inequity between what was available under the PPF and what was available under the FAS.

The other day, my hon. Friend the Member for North-West Norfolk (Mr. Bellingham) raised the issue of the Albert Fisher pension scheme, which sadly failed. He made the point, and I think that the Minister kindly promised to have a discussion with him about this, that although she bandies around this 90 per cent. compensation figure—90 per cent. of what people would have received—many people in the Albert Fisher scheme received less than 60 per cent. So, there are some oddities in the ways in which these rules operate even now. I do not want to pre-empt the meeting that she kindly offered to have with my hon. Friend, but it is important to find out why, in some cases, there are such unfairnesses.

I had an e-mail from Peter and Jackie Humphry, who have been very strong campaigners for the Pensions Action Group, outlining a number of points. In particular, they are concerned about the refusal to recognise different retirement age entitlements. Again, that is something that the Minister might need to consider between now and the next batch of regulations later in the year.

The indefatigable Dr. Ros Altmann sent some comments, which, as always, are useful and relevant. She says that the regulations—in particular regulation 7—should be amended to allow the member to choose which retirement date they want their pension to start from. If they do not wish to choose, the FAS should specify the start date as the date at which the majority of benefits come into payment. Again, I should be interested to hear the Minister’s comments on that. She also says that transitional protection should be given to ensure that members receiving interim or initial ill-health payments should not have their payments reduced—my understanding is that under the regulations, they could be enhanced, but, equally, they could be reduced—if the transitional protection calculations give them a lower amount. Again, I see some force in that.

Dr. Ros Altmann rightly commends the payments for survivors and dependents, which is good. She also supports the transfer of management to the PPF. She said that it never made sense to have a separate operation in York, administering pensions for the FAS, when the PPF was already doing the same thing in Brighton—and I might say doing it a lot better.

I heard from one of the main campaigners of the Pensions Action Group. Mr. Terry Monk is a member of the Bradstock scheme, which collapsed in November 1999, and he has a deferred pension of £34,000. That means that, with the cap and other regulations applying to him, he is losing, on his calculation, £18,000 a year of the original pension. There are still some apparent unfairnesses and inconsistencies in the way in which the regulations affect particular schemes and particular people.

Finally, I have a few comments arising from the consultation, which is a very interesting document. Again, I will try to stick to some of the main points, but a lot of useful comments have been made by a variety of individuals and organisations. One of them concerns early access with actuarial reduction. It was argued that, as actuarially reduced early access was cost-neutral, there was no reason why it should not be provided for in the FAS, as it is by the PPF. Again, if it is cost-neutral, will the Minister comment on why that should not be available when it is available under the PPF rules?

On ill-health early access, which is important and on which we have made progress, in terms of the rules changing and concessions being made over time, the consultation says:

normal retirement age

otherwise one has inconsistency between individuals. Perhaps the Minister will comment on that.

I have already touched on the treatment of rights accrued at different dates and different retirement ages within pension schemes. I should like to mention the cap, which has been a source of some contention for some people who have responded to the consultation. There has been a cap on assistance since the beginning of the FAS, with a view, quite blatantly, to cut the costs. Few people have had the cap applied to their entitlements so far, but the Government are still fairly wedded to it. Again, it would be interesting to hear the Minister’s comments.

Mr. Tom Watson (West Bromwich, East) (Lab): Would the hon. Gentleman like to lift the cap?