Steve
Webb: I am not delighted to hear that; indeed, I am quite
alarmed to hear
it. There
is a lot of technical detail in these measures, which are part of a
series, and I strongly welcome the iterations that the Government have
gone through to beef up the scheme, although they have rather been
dragged kicking and screaming to do so. However, it is clear that the
figure is not 90 per cent. and that some pensioners will get far less
than that on day one. Indeed, most, if not all, of the pensioners who
are affected—about 114,000 people—will see a decline in
their real living standards year by year, decade by decade. I suspect
that many of them will be forced on to means-tested benefits to make up
for the shortfall in what the FAS is not providing when their benefits
have been eroded, so the financial saving from indexation—to
come back to the
intervention of the hon. Member for West Bromwich, West—is not
even as great as the gross cost, because some of it will be clawed back
through pension credit. I think we would all rather that those
pensioners had a decent pension in their own right than that they
should have to rely on means-tested assistance to top up an assistance
scheme for a pension that they should never have lost in the first
place. Mr.
Bailey: I am interested in the hon. Gentleman’s
approach. Will he outline the criteria that he would use to define the
level of indexation specific to individual
pensions?
Steve
Webb: Each of the pension schemes of which those people
were members would have had a set of indexation rules, so there are
statutory minima—nil pre-1997 and limited price indexation
post-1997. Each scheme would have had either just that or something
better than that, such as retail prices index, or RPI up to 5 per
cent., but that will have varied between the schemes. If the Government
want us to believe that people are getting 90 per cent. of the pension
that they would have received, it should be what they would have
received under the indexation rules of the scheme of which they were
members and for which they will have paid differently from people in
other schemes. I ask only for consistency with what they have already
paid.
The
regulations are a missed opportunity to deliver 90 per cent. For all
the reasons that we have indicated, they clearly do not. Unless the
Minister can reassure us that the Government’s winter
regulations will address the problem, we will struggle to support
them. 5.10
pm
Angela
Eagle: I shall do my best to respond to the technical
points raised, and I shall make some general observations. The
regulations are a further milestone in delivering the significantly
increased assistance announced by the Government in December 2007. They
build on the foundation of the pension protection regime that we put in
place under the 2004 Act. They deliver worthwhile improvements to many
who qualify, or who will now qualify, for assistance. They provide for
indexation in respect of pensions accrued after 1997, and the
assistance calculation can now take into account pensions accrued to a
pension age different from a scheme’s normal retirement
age.
The
regulations allow the Government to extend assistance to surviving
partners—I am glad that has been widely welcomed—and
children of deceased members. They provide for the cap on assistance
payments to be increased in line with the RPI, which I assume is also
widely welcomed, bringing it to £29,386 for anyone who becomes
entitled to assistance in the current year. I understand that for some
people, the assistance provided by the financial assistance scheme
still falls some way short of what they were hoping to receive in
retirement. However, we must bear in mind that that must be set against
what they would otherwise have received from their schemes.
Thousands of
people are better off in retirement as a result of the assistance given
by the financial assistance scheme. We should also remind ourselves
that the substantial cost of the assistance payments should be fair to
the
taxpayers who fund them, as well as to those who receive them, given
that many taxpayers will not have access to similar pension provisions.
I mentioned a figure of £3.6 billion. The more accurate figure
is £3.5 billion. I do not want to mislead the
Committee on the cost of providing the scheme. Those parts of the
regulations that we have discussed have been widely
welcomed. On the points
raised by Opposition Members, I am a Yorkshire woman, and I am little
worried that York has been on the receiving end of much bad comment
this afternoon. However, the idea that setting up the payments system
in York was a hugely expensive undertaking is not true. A site was
available in York with 50 experienced staff, so we decided to locate
the financial assistance scheme operations unit there.
The structure
of the scheme has evolved, particularly given the series of extra
regulations that we have been discussing. Much of what it will do
relates to the pension protection fund, particularly as it helps
schemes to complete wind-up and making arrangements for the transfer of
assets; it does not simply make payments. A particular expertise had
been developed by the pension protection fund that fitted the evolving
nature of the job in respect of the financial assistance scheme. That
is why the transfer was made. I note that it has been welcomed, if
somewhat churlishly.
The hon.
Member for Eastbourne welcomed the extension of survivor benefits and
made some comments about a scheme, but it was not a financial
assistance scheme. Turner and Newall is involved in the pension
protection fund, not the financial assistance scheme. It is important
not to mix the two schemes. They are similar, but not the
same.
Mr.
Waterson: Just to clarify, I was asked specifically about
the notion of a cap, which both schemes—PPF and FAS—have
in common, and that is a good illustration of how a one-size-fits-all
cap does not necessarily do the
job.
Angela
Eagle: I will come to the cap, but I did not want hon.
Members to assume that that pension scheme was in the financial
assistance scheme, because it is not, although I accept the hon.
Gentleman’s point in using it as an
example. The
hon. Gentleman asked about transitional provisions. Obviously, there
are complexities in the various schemes, and there are more than 830
schemes in the financial assistance scheme, so it is difficult to
generalise. There are complexities in the way in which the various
changes that we are discussing and the regulations interact with
individual scheme rules, which means that in a small minority of cases
it is possible that entitlement will go down. That is the point about
transitional provisions. When that happens to someone’s
finalised entitlement, the current amount will remain in payment, so
there is transitional protection to prevent payments from going down in
those circumstances, and I hope that that will be
welcome. The
hon. Gentleman and the hon. Member for Northavon made a point about not
paying 90 per cent. The Government have guaranteed that the financial
assistance scheme will provide 90 per cent. of the expected
pension, subject to a maximum limit. That is the cap that we are
discussing. The expected pension is a member’s accrued pension
at the date of wind-up, revalued to the member’s retirement
date. It is not what the member would have received had the scheme
continued without having to be wound up or had there been no difficulty
with it. That 90 per cent. is not the same as 90 per cent. of what
members could have expected at retirement if their scheme had continued
operating with no difficulties. That is the crucial
difference. The
financial assistance scheme applies its own revaluation rates from
wind-up to date of retirement, and those rates could be lower than
those that would have been applied by the scheme had it continued and
had there not been a difficulty with wind-up. It is important to put
that on the record. The 90 per cent. is of the expected pension at the
date of wind-up. It must take account of the difficulties that the
scheme being wound up has got into. I hope that Opposition Members
accept that. I am not claiming, and never have, that the 90 per cent.
applies to schemes as if they had continued to full
maturity.
Steve
Webb: This is a fundamental point. People who hear about
the 90 per cent. will think it is 90 per cent. of what they would have
got. Will the Minister explain the difference between someone who
simply leaves the company on a specific date and draws a pension under,
for example, the FAS subsequently, and someone whose company pension is
wound up on the same date? What is the extra thing about it all going
wrong that the Minister is talking about and which makes the 90 per
cent. of what someone would have got different from the 90 per cent. to
which she refers? What is the impact of things having gone wrong? What
is she talking
about?
Angela
Eagle: All I can say is that the expected pension is the
member’s accrued pension at the date of the wind-up. It is not
what the member could have expected to get if he or she had been in
work and in the same pension fund through to retirement age. They are
two different things, and the former, not the latter, is what the
financial assistance scheme
provides.
Mr.
Waterson: It may be just that time of day, but if a
sponsoring company fails and there were no FAS or PPF, and the scheme
went into wind-up with inadequate assets, clearly there would be a
shortfall. Is that not where we came in in the sense that that is why
we have an FAS in the first place? Am I missing a central point, or is
the
Minister?
Angela
Eagle: Some schemes’ assets are so parlous that
they would not be able to pay anything other than the minimum funding
requirement, which was set out before the Pensions Act 2004, and that,
in some places, would be a very minor amount. The financial assistance
scheme will give 90 per cent. of support to what had been accrued at
the date of wind-up, not at the date of the normal retirement had the
scheme gone on.
Dr.
Stoate: If I might assist, I think the difference results
from whether the scheme is a defined benefit or a defined contribution
scheme. [Interruption.] Well, many
schemes with defined benefits will have difficulty even if they do not
collapse. In a difficult market, they will find it difficult for the
assets of the scheme to meet all expected payouts. Some schemes have to
rein back some of the benefits despite the fact that they might not be
insolvent—they might simply have difficulties in making their
final payments add up with the assets they have. Schemes may face
difficulties even if they do not wind up
completely.
Angela
Eagle: I hope that that is all clear. I have made the
point, on the record, of the amount that the 90 per cent. relates to,
and it is not 90 per cent. of what would have happened had there been
no interruption and no problem with the company pension
scheme. The
hon. Member for Northavon also referred to various unfairnesses and
inconsistencies with the way particular pension rights have been
calculated. There are over 820 schemes in the assistance scheme.
Inevitably, there has to be some general approach that applies across
the board. Short of saying that each individual scheme will be taken
over and run exactly how it would have been, which would be an
enormously complex process, it is important that the financial
assistance scheme does the best it can, working with the two
figures—the 90 per cent. of expected pension at wind-up with the
cap—to calculate the fairest possible outcome for everyone
within the financial and cost constraints that we know
about.
Paul
Rowen: I am struggling with how that can be fair. If
someone has contributed something with an expectation that there will
be an RPI plus three, five or whatever their scheme says, for them to
get less than that is not fair, and it is not a proper financial
assistance scheme.
Angela
Eagle: I do not think that anyone is saying that it is
fair that someone ends up with fewer benefits that they were expecting
because of the circumstances that we are all dealing
with—schemes that get into trouble and have to be wound up, or
end up under-funded due to circumstances beyond the control of fund
members.
When the
campaign to extend the financial assistance scheme was ongoing, much
was made of saying that it should be comparable with the pension
protection fund. On indexation, the regulations will make the financial
assistance scheme comparable with the pension protection fund, where we
have accruals of 2.5 per cent. for post-1997 accruals. The same is true
of the pension protection fund as it is of the financial assistance
scheme. It would always be nice if we could do a lot more or give
people what they originally thought they were getting, but there is a
cost constraint, and there is a balance. The regulations, with the
changes they introduce on indexation, are exactly analogous to the
protections that are available for pension protection funds, which is
indexation at 2.5 per cent. for post-1997 accruals.
The hon.
Member for Eastbourne talked about giving early access to various
people for lump sums; he mentioned early retirement in particular. He
also mentioned that some people had written to him to say that it would
be cost-neutral, as the schemes are funded. But the financial
assistance scheme operates on the basis of
pay-as-you-go,
funded by the taxpayer. Making payments early, even at reduced amounts,
would bring costs forward. Unrestricted access to early retirement, for
example, could increase assistance payments by 15 to 20 per cent. over
the next few years, so in order to keep costs within manageable limits,
we have allowed early access for those people with a particular need
for it. For instance,
terminally ill members will be paid immediately. Members who are within
five years of their retirement age and cannot work on health grounds
can also be paid reduced assistance. We have done what we can to bring
assistance forward in the most needy cases, but it is not and never
will be cost-neutral to bring it forward in the way suggested by the
hon. Gentleman.
Some comment
was made about the question whether the cap should be abolished. The
Government believe that a cap is a necessary part of the structure, and
we want to ensure that the assistance provided is proportional to the
scale of loss, but again, there must be a balance against the potential
costs. Raising the cap could make for a complex system and create
unfair cliff edges whereby a person just on the wrong side of a period
of service would qualify and somebody on the other side would not.
Currently, very few people’s assistance is limited: it is only
15 at the moment. We believe that the cap, which is three times the
average pension payment—it is not a small amount as now indexed
by the changes—is a justifiable balance in the arrangements that
we have introduced for Parliament to consider.
Both
Opposition Members asked what will be in the winter set of regulations.
The final set will deal with taking in remaining scheme assets and
making payments associated with those assets. I do not want to give the
hon. Member for Northavon the wrong impression. It will not reopen the
issues covered by these or previous regulations; it will be the
completion of the entire approach announced in 2007.
With those
explanations, although Opposition Members might not necessarily agree
with them, I hope that they will acknowledge that the regulations are
an improvement. I commend them to the Committee.
Question
put. The
Committee divided: Ayes 9, Noes
2.
| 
