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The pension trustees were initially happy to do that. We reached the point when the whole deal was to come out of escrow and be signed at nine o’clock the next morning. Incidentally, I should add that this happened to be the first day of the only honeymoon of my life, which made for very interesting proceedings.

A noble Lord: Is the noble Lord still married?

Lord James of Blackheath: Yes, I am, and I express my appreciation to the Government for what I can describe only as a character-building experience for my wife and me. By dawn, at seven o’clock the next morning when we had resolved the matter, my wife was convinced that she had married into a madhouse, and, indeed, she had in terms of what the law was bringing about.

During that last night, the trustees lost their nerve in relation to the British pension scheme because the pension beneficiaries of the British company threatened to take proceedings against the trustees personally if they did not succeed in getting the company into the lifeboat, which they could do only by bankrupting the British company. So, by insisting on the bankruptcy of the British company, they lost the benefit of some 1,500 jobs and the potential value to our economy of any future recovery that that company might have produced. Therefore, there was a complete distortion of the priorities that should have flowed from the decision processes forced through by this action.

Amendment No. 69 would remove that problem so that it could never occur again. I am sure that there will be many variations of it but the demands that it imposes on trustees are too unpredictable and completely irresponsible. Therefore, I wholly support the amendment.

6.15 pm

Baroness Howe of Idlicote: I support the amendment along the lines of the views expressed by my noble friend Lady Greengross. We are all upset to know that this group of people has been severely disadvantaged. I know that many Pension Acts have been passed since I was on the board of Legal & General. I also sat on its pension fund and often asked why the company was taking a pension holiday. Now there are incentives for companies to do that in good times, and I am told that there might even have been penalties if the company had not done so.

Anyone who reads the letters that have been sent to noble Lords on this subject will feel a sense of responsibility. It may be that none of the proposals in the amendments provides the perfect method for making appropriate compensation, and perhaps the answer is that such compensation should come from all the groups that have been mentioned, including those of us who will also lose out on our pensions in due course. Hundreds of letters have been received and they have all been individually written. They are not the sort of letters that one puts straight into the waste paper basket—the type of letter which someone writes out for you and which you send on. These are heartfelt letters from people who had imagined that they would have a reasonable retirement with not huge sums of money but enough to live on. The letter that upset me most was from a woman who felt that she had to lie to her husband on his deathbed by saying that she would be all right. She said that she had never lied to him in her life and feels sad that she had done so, but she lied so that he could die feeling that everything would be all right for her.

We must find some way of doing the right thing by this group of people. It cannot be right that they are getting only 60 per cent of what was promised to them. The situation has been going on for a long time and many of them have died in the mean time. These may not be the right amendments but they convey the general feeling. At one stage, under the previous Government, we were all encouraged to move out of the state system and into the private sector, and a lot of the people whom we are talking about today became victims as a result of that. They were told that what they were doing would be more beneficial to them in the long run. However, things have not turned out that way, so I hope that we will think again.

Baroness Turner of Camden: I have some difficulty with this series of amendments. First, I have considerable sympathy for the people who have written to me, as they have to all noble Lords, about their situation concerning the FAS and so on. However, I point out to my noble friends who have queried whether the Government have any responsibility that I think that there is a moral responsibility.

We have to remember that our pension system in this country, even from the time of the Castle scheme, has been built on the basis of a partnership between state and private provision. That was specifically stated in relation to the Castle scheme and, rightly, successive Governments have encouraged occupational pension schemes. Therefore, in that respect, we have some responsibility for failures in our part of the partnership. I remind my noble friend Lady Hollis that, when the MFR was introduced, some of us pointed out that it would give people a false sense of security because it would not provide the security that people imagined it would.

So far as concerns the present situation with the FAS and so on, as I said, I have considerable sympathy with the idea of a lifeboat fund. My only concern relates to the way in which it is proposed that it should be funded. I draw attention to the article by my right honourable friend Frank Field in the current Pensions Weekly. He supports the idea of a lifeboat fund but says that it is very important that the right sort of amendment is carried in this House. He is very much against any possibility of trying to use unclaimed pension assets. He points out that that is not at all reasonable: pensions are held in trust and therefore there is no possibility of claiming any assets in that regard. However, he does not say that there is any objection to using unclaimed moneys in banks and building societies and says that that is a possibility.

I certainly believe that there is a strong case for dealing with this fairly immediately, because making people wait for a review will cause further agitation and lobbying. That is a problem. I agree with the idea of a lifeboat fund but I am not at all happy about these proposals for funding it.

Lord McKenzie of Luton: The Government have great sympathy with all pensioners who lost out in very unfortunate circumstances. That is why we are committing some £8 billion of taxpayers' money to seek to address the issue. The noble Baroness, Lady Howe, referred to correspondence that she has received. It is incumbent on us all to think of those situations when we address this problem.

Having said that, I think that it is a bit rich of the noble Lord, Lord Skelmersdale, to try to get political capital out of the issue. The Conservative Party was criticised by the ombudsman. The ombudsman's report spanned 10 years from 1995, when the Tories introduced the minimum funding requirement, to which my noble friend Lady Hollis referred, in the Pensions Act 1995, in the wake of the Maxwell pensions scandal. Of course, William Hague, who is now shadow Foreign Secretary, was the Pensions Minister dealing with that matter. We should put these party-political scoring points behind us so that we can address the issue seriously.

Lord Skelmersdale: The Minister does not exactly encourage me to do that. I remind him that this Government have been in power for 10 years and even up to 2004 they had had plenty of time to deal with the situation.

Lord McKenzie of Luton: This Government introduced FAS, which introduced the PPF. There was nothing near it under the previous Government. Our record in helping pensioners is far superior to theirs. We have lifted 1 million pensioners out of relative poverty since we have been in office, which puts the previous Administration's record to shame.

These amendments appear to me to cover three issues. First, many of them represent a potential call on the public purse well in excess of the £8 billion already committed by the Government. The noble Lord, Lord Skelmersdale, asked me about the £8 billion; he is right to say that it has a net present value of £1.9 billion. The cost of the proposals that he supports, in cash terms, would be in excess of £10 billion, and there is an extra net present value associated with that of £640 million, which I believe is effectively a public expenditure commitment.

Secondly, many of the amendments would replicate work that the Government are already undertaking to ascertain whether funding can be found from non-public expenditure. Thirdly, none of them would mean more money for more members immediately. Indeed, their effect might very well be to slow down payments for members, which I know is not the intention of the supporters of the amendments.

The noble Lord, Lord Oakeshott, said that we are ignoring the findings of the ombudsman’s report. He will be well aware that we placed a detailed response to the report before Parliament in June of last year and that in November we published our response to the report of the Public Administration Select Committee on the same issues.

I also remind the Committee—I believe that the noble Lords, Lord Oakeshott and Lord Skelmersdale, referred to the High Court—that the High Court upheld the DWP’s decision to reject the ombudsman’s finding of maladministration in respect of a change made to the minimum funding requirement in 2002 and it upheld the DWP’s decision to reject the ombudsman’s conclusions that the maladministration identified led to the losses incurred by all members of the schemes that went into wind-up between 1997 and 2004.

Amendment No. 68 would transfer responsibility for managing FAS from the Secretary of State for Work and Pensions to the board of the Pensions Protection Fund. That gives me an opportunity to talk about the substantial work that FAS is, and has been, doing and to explain why transferring responsibility for the scheme to the PPF would not, in fact, be in the best interests of members. I know that some noble Lords remain convinced that the PPF could run the FAS better than it is run under the current arrangements. Let me remind the Committee that the review of FAS administration carried out at the Government's behest last year did not agree. That review, which benefited from input from the PPF, concluded that, while lessons could be, and have been, learnt from the PPF's approach to proactive data gathering, there are significant constraints on its ability to manage FAS operations. I see no reason at this point to revisit that conclusion. I do not rule out looking at this again should the review of pension scheme assets identify a different approach to funding FAS, but I do not think that it is sensible to pre-empt those findings.

Perhaps at this juncture I could update the Committee on what is happening. In most cases, FAS money is not paid until a member reaches 65. That means that there are not 125,000 people waiting to be paid at this moment. We estimate that there are around 10,000 individuals who are over 65 and should qualify for payments under the current scheme rules, but the Operational Unit has already carried out assessments on around 4,100 people: of those, 1,624 are eligible for payments of FAS; 1,236 are being paid now; 68 will be paid as soon as the members have confirmed their personal details; and 320 will be paid as soon as they reach 65. There are 2,482 who are currently ineligible because of the de minimis £520 a year constraint and other factors such as the relatively high funding level of their scheme. The legislation requires applications made by trustees, as only they can provide the data that are needed to assess payments.

One factor limiting payments is relatively high levels of scheme funding; for example, schemes are able to make payments higher than the FAS initial payment level of 60 per cent. However, the Bill raises the level to which FAS will top up any interim pension being paid by a scheme that is still winding up from 60 per cent to 80 per cent. That will enable us to provide assistance with immediate effect from Royal Assent to hundreds more people who currently receive 60 per cent from their pension scheme.

Other factors may prevent trustees from making applications and providing us with the data that we need to make payments, but some will have worked out that their members will not receive FAS due to the de minimis level of pension already in payment and so have chosen not to apply for payments on their behalf. We expect that to change once the FAS rules are amended to benefit such cases, as I have outlined. Other trustees will be close to completing wind-up and so will be reluctant to supply data for initial payments when they will have to submit final data for annual payments a short time later. Others are anxious to await the outcome of a current court case—the Dubery case—which will impact on how they treat their members, and do not wish to provide us with data that may turn out to be incorrect and lead to overpayments.

While those are legitimate reasons for caution, they are delaying people receiving help, so we are working with trustees and administrators to help to resolve those issues. I can truthfully say that we are paying all those members for whom appropriate data have been provided and will continue to do so, but we are conscious that it is individual members who suffer if they are due to receive money at 65 and, for whatever reason, are not getting it. I can announce today that we are introducing arrangements so that, rather than relying on trustees to make applications on their behalf, individual scheme members who believe that they are eligible for payment can advise the FAS Operational Unit direct, which will then contact the scheme trustees to seek to arrange a payment. I shall shortly be writing to all noble Lords to explain the new arrangements. The Government will be seeking help from campaigners and trade unions to ensure that everyone eligible for assistance receives it as quickly as possible.

6.30 pm

Lord Oakeshott of Seagrove Bay: Given the appalling delays we have had for all these years, why has it taken so long for the Government to take this absolutely simple step?

Lord McKenzie of Luton: I have tried to outline the difficulties in getting payment through the system more quickly. My noble friend Lady Hollis touched on issues of data. We have had to rely on trustees. We will still have to rely on trustees, but we are creating this extra avenue of approach to try to speed things along. I hope that the noble Lord will support that.

The effective use of taxpayers’ money to revisit the operation of FAS will undo the very real efforts made by the FAS Operational Unit to improve performance since its inception and since the review of administration. We have invested in training for staff, working with a leading provider of services to the pensions industry to ensure our people are able to deal with the complexities of the schemes with which they come into contact.

I will identify briefly the sort of cases that the FAS Operational Unit deals with on a daily basis. This demonstrates the difficulties of dealing with the sorts of pension scheme that qualify for FAS, which are very different challenges from those facing the PPF. It also demonstrates the commitment and determination of FAS staff to secure the best possible outcomes for members. I will not name the pension scheme in question but it began to wind up with 24 members in 2001. Only eight pensioner members received payments from the scheme at first, and these ceased in 2002. Since then no payments have been made to any scheme members. It having been accepted as a qualifying scheme for FAS, we requested the scheme records to assess FAS eligibility and payments, only to be told that most of the member records had been lost. The records that did exist were insufficient to determine payments.

Since then, FAS staff have worked to trace the whereabouts of members and to piece together the data they need. This has involved contacting known members, former administrators and actuaries, the Pensions Regulator, HMRC, and other parts of DWP. Not all those avenues would be readily available if FAS were administered outwith the department. Most of the scheme members had given up hope of seeing their scheme pension. In many cases they were not even aware that their scheme had been submitted to FAS for consideration. To date, we have awarded payments ranging from around £1,000 to £4,000 per annum, with arrears of up to £8,500. This is making a real difference to people who had given up hope and it is a testament to the dedication and skills of FAS staff.

There is no evidence that the PPF, which, let us remember, has no experience of dealing with schemes that have long since wound up or where records are hopelessly outdated or even non-existent, would prove more capable of dealing with these problems. The PPF is finding that even the task of dealing with pension schemes newly entering the assessment period is more resource-intensive than anticipated. We are working to share the lessons across FAS and the PPF. We continue to strive to improve our processes.

Amendment No. 69 removes the provisions of the FAS regulations relating to employer insolvency event qualification conditions. The purpose of this amendment appears to be to ensure that schemes, and therefore their members, are not excluded from the FAS solely on the basis that their employer is solvent. In its fifth report, published on 10 May, the Public Administration Select Committee asked us to look into this issue. I shall explain how we are doing so.

We have great sympathy for any member of a defined benefit scheme faced with the loss of their pension through no fault of their own. However, in developing FAS to provide help for such people, we have been careful to ensure that taxpayers’ money is not used to provide assistance for pensions that could and should be funded by relevant employers. We believe that even where employers have no further legal obligation to fund their scheme, there remains a moral obligation that should be followed. In its report, the PASC sympathises with this aim, saying it understands,

“the Government's unease that the taxpayer is having to provide pensions which were promised by employers and should be honoured by those employers”.

We aim to ensure that all members of relevant schemes receive at least 80 per cent of their expected core pension, subject to the cap, wherever employers are unable to fulfil their pension promise. That is why the definition of “employer insolvency” for FAS purposes is designed to be sufficiently general to capture schemes where the sponsoring employer no longer exists and where insolvency may have occurred some time after scheme wind-up had started. We continue to look closely at schemes that are excluded even under this generous definition, which is why we announced on Report in another place that we will extend the FAS to cover members of schemes that began winding up between 1 January 1997 and 5 April 2005 where a compromise agreement is in place and when enforcing the debt against the employer would have forced the employer into insolvency.

The noble Lord, Lord Skelmersdale, asked how quickly we would be able to come forward in that. We intend to include such schemes in regulations to bring about the extension of FAS announced in the Budget, and hope that this will come into force by the end of this year.

Despite these changes—and I think this is the point touched on by the noble Lord, Lord James—we are aware that there may be some schemes not covered by this proposal in which members may face a comparable loss to their pension in similar circumstances. Therefore, we have asked the review into pension scheme assets to consider representations on behalf of members of such schemes. It would not be right to provide assurances that all schemes, irrespective of their solvency position, should be able to qualify for the FAS now before the review presents its findings. For example, some of these schemes will still be winding up and hoping to bring pressure to bear on employers to make contributions to the fund. If the Government indicate that their members are likely to be helped via FAS, there would be little incentive for trustees to rigorously pursue such cases or for employers to respond sympathetically. It would not be right to ask the taxpayer to bear the price of this amendment without careful consideration of this risk.

The next amendment calls for supplementary payments at PPF levels to be made to FAS recipients. The Opposition attempted to float their lifeboat fund in another place and, if I may say so, it remains as full of holes now as it was then—a leaky vessel, in which I could not encourage scheme members to place their trust.

Of course, the Government sympathise with the aim of getting more money to people who have lost their pension. We have committed £8 billion of taxpayers’ money to the financial assistance scheme and have set up a review, led and advised by experts, to investigate whether additional funding can realistically—I stress “realistically”—be found. What we will not do is to make rash promises to members which might very easily result in yet more public money being spent on assistance.

The amendment would require the Secretary of State to make loans to the lifeboat fund so that it could top up pension and FAS payments. Without a guarantee that there are sufficient funds within unclaimed assets to cover these loans, this amounts to nothing more than an open-ended spending commitment. The noble Baroness, Lady O’Cathain, was very happy with that proposition. She did not want to dip into lifeboat-fund assets, as I understand it, and was quite happy to support public expenditure funding this increase. I wonder therefore whether she will desist from voting with her colleagues who propose another solution today. Given that the loans are interest-free, there is an element of public spending even if they are eventually repaid.

Even without the question of funding, the issues are complex. A commitment to a process and structure that has been cobbled together without proper consideration of the legal and administrative difficulties, however well intentioned, could very possibly simply make things worse. The amendment fails in its aim of getting money to members more quickly. As envisaged by the Opposition, the lifeboat fund will top up actual pensions and FAS. This means that members could conceivably receive income via three separate streams and from three different agencies—their scheme pension, FAS and the lifeboat top-up. That is a recipe for confusion and delay.

The Government have pledged, if the assets review concludes that it is workable, to raise assistance levels towards 90 per cent. We are providing more money for more people immediately through changes to initial payment levels in Clause 18. Unlike the lifeboat fund, those are real commitments on the basis of evidence and backed up by action.

I now turn to Amendment No. 71, especially its proposed new subsection (6), and Amendments Nos. 73 and 74. These amendments make provision for yet another institution in the pensions protection arena to be funded by the taxpayer. I consider that setting up a pensions unclaimed assets recovery agency exemplifies precisely the sort of waste to which the noble Baroness, Lady O’Cathain, referred on Second Reading and again this afternoon.

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