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Financial Assistance Scheme

Volume 447: debated on Tuesday 20 June 2006

I am pleased to have the opportunity to debate the financial assistance scheme. I congratulate the Government on introducing it, as well as the Pension Protection Fund, in the Pensions Act 2004. One of the main reasons that those provisions were introduced was the persistent lobbying by employees affected by the collapse of their pension funds, by their unions and by MPs in this House, some of whom are here. Ex-employees of Allied Steel and Wire led the fight and continue to do so. I pay tribute to them.

ASW was a steel company with plants in Cardiff and Sheerness. In Cardiff, the plant was based in the constituency of Cardiff, South and Penarth. I am delighted that my right hon. Friend the Member for Cardiff, South and Penarth (Alun Michael) is here. I am also pleased that my hon. Friend the Member for Sittingbourne and Sheppey (Derek Wyatt) is here.

ASW had 1,200 employees when it went into receivership in the summer of 2002. Of those, 838 worked in Cardiff. All the constituencies in Cardiff and the adjoining areas have people affected by the collapse of ASW. My hon. Friend the Member for Cardiff, West (Kevin Brennan) led the fight for pension rights for the Cardiff workers. He was supported by many local Members of Parliament.

The plight of the ASW pensioners was dramatically highlighted in the House at the time by very moving stories about people who had lost the whole of their pension as well as their job. The trauma of that time is still alive for the people affected even though it was more than four years ago. Last weekend, I met a group of ASW ex-employees in Cardiff, North. They movingly described the experience of learning that the plant was to close and believing that they had lost their jobs but had at least got their pension rights, having paid into the occupational pension scheme for decades. Ten days later, those people learned that they had lost the bulk of their pensions as well.

Approximately half of the people who lost their jobs were then employed by Celsa, the Spanish firm that took over the Allied Steel and Wire site. However, there was a gap of more than 12 months in their employment. One of the effects of that was that Celsa did not take over responsibility for their pensions. Although it is of no benefit to the deferred pensioners, as they are known, the fact that Celsa has restarted steel production in Cardiff and is spending £100 million on modernising the complex is to be welcomed.

I agree with my hon. Friend that the investment by Celsa in Cardiff is welcome. Many were cynical about the possibility of that investment. Does she agree that the efforts made to avoid the gap that she referred to and ensure continuity were important? Our colleagues who were then at the Department of Trade and Industry co-operated with local Members in trying to keep the plant open rather than having the closure that led to the consequences that she is talking about.

I thank my right hon. Friend for that intervention. Yes, huge efforts were made to avoid that gap but unfortunately it did occur.

The issue of pensions for ASW workers has never been resolved. The workers have continued to campaign to this day. As a result of the problems faced by employees such as ASW workers, the Government set up the Pension Protection Fund. It will protect future pensioners from the fate of the ASW pensioners. It is essentially an insurance scheme. As we all know, it is not retrospective. It is ironic that those who campaigned hardest for this protection did not themselves benefit.

As a result of persistent lobbying, the Government set up the financial assistance scheme to help members of private sector schemes winding up with assets insufficient to meet liabilities which would have benefited from the Pension Protection Fund had it existed. The schemes would have had to start to wind up between 1 June 1997 and 6 April 2005, when the Pension Protection Fund came in. Initially, the scheme applied to members who had reached retirement age, or who had been within three years of doing so. However, it applied to very few people. I believe that, at the last count, only 17 of the ASW pensioners in Cardiff had benefited.

I was very pleased, as I think were all hon. Members, when, in the pensions White Paper of 25 May, the Government extended the scheme to those who were within 15 years of retirement on 14 May 2004. That will bring the actual pension up to 80 per cent. for those who were up to seven years from retirement date, 65 per cent. for those between seven and 11 years away and 50 per cent. for those between 11 and 15 years away.

I join the hon. Lady in welcoming the additional funds that have gone into the financial assistance scheme. Does she share my concern that, despite the extra funding, 620 of the 1,000 affected ASW workers in Cardiff are too young to receive anything under the new guidelines, so many people will still miss out?

I thank the hon. Lady for that intervention. I shall come on to that.

The Government also extended the funding for the financial assistance scheme from £400 million over 20 years; the total will now be £2.3 billion. That is a big step forward, and I congratulate the Government on it, but there are still serious gaps. Will the Minister confirm what percentage of eligible pensioners will benefit from the proposals? I am told by the union Community that 38 per cent. of those in the ASW pension scheme are likely to benefit: 9.5 per cent. benefit from the 80 per cent. top-up; 12.5 per cent. from the 65 per cent. top-up; and 16 per cent. from the 50 per cent. top-up. What is the Minister’s knowledge of that, and will he explain the decision not to consider length of service as well as how close a member was to retirement?

I know of glaring examples of people who miss out on the 15 years, even though they have paid into the pension fund for more than 30 years. My constituent Mr. Saxby of Whitchurch misses the 15 years by three months. He worked at East Moors for eight years from 1970, came out of SERPS and went into the ASW occupational pension scheme in 1979, and paid into that for 23 years until 2002.

Another constituent of mine from Heath worked in the steel industry in Cardiff from August 1968, from the age of 15. He worked with ASW until the closure in 2002, contributing to the works pension scheme. Previously, he had contributed to SERPS and he transferred to the final salary works pension scheme, believing, under the guidance of the Government, that that was guaranteed. He wrote to me last month after hearing about the increased funding:

“To my utter dismay, I find that no assistance is available to me, since I do not fall into the category of being within 15 years of retirement, being 2 months short of the qualifying period. This is totally unjust, as up to the closure of ASW, I was employed in a very harsh environment, paying taxes fully, while doing my utmost to secure my future for retirement via the works pension scheme, as recommended by the Government ... After 34 years contributing, I face a bleak retirement.”

These years have placed a heavy toll on the ex-ASW employees and their families. I am told that there is no provision to make any payment to the dependants of deceased scheme members until the deceased members nominally reach 65, whatever hardship their dependants suffer. I understand that four former ASW workers have died in the time that has elapsed, three of whom have left widows.

I have also met a man who was about to retire on grounds of ill-health, and was negotiating his pension after having had heart bypass surgery, when the scheme collapsed. He has had to survive on sickness benefit ever since, and that has been very hard for him. Will the Minister explain why such people have been left out, and may I appeal to him to look again at the scheme?

Other avenues are being pursued by the former steelworkers. As the Minister will know, the ombudsman, Ann Abraham, has said that the Government are guilty of maladministration and has called for compensation to be paid to those who lost money when their pension schemes went bust. The Government have rejected her finding of maladministration and have estimated that it would cost £15 billion to comply with the ombudsman’s report. Will the Minister tell us how that figure was reached?

The hon. Lady mentioned the figure of £15 billion. The Government’s response to the ombudsman’s report stated in the appendix that the figure would be between £3 billion and £3.5 billion. Will the Minister clarify those figures?

Will the Minister also comment on the action taken in the European Court of Justice by Community and Amicus? Those unions took the Government to court on 1 June over the failure of the Conservative Government in 1983, and of subsequent Governments, adequately to implement article 8 of the 1980 insolvency directive. We are now waiting for the Advocate-General to publish his opinion of the case. If the action were to be successful, would the Government have to reimburse in full all eligible members of the pension schemes?

The financial assistance scheme is a good idea, but it is far too limited in whom it will help. There is a strong case for considering length of service. For younger deferred pensioners who have years of contributions and have been re-employed, for example at the Celsa site, there is much less opportunity to build up a second pension entitlement. Celsa has contracted out much of the work that was previously in-house. Last weekend I met another ex-ASW worker, a forklift truck driver, who now does exactly the same job for a contracted-out firm. He has done the same job for 24 years, at the same site, but has lost his pension from ASW. He has had no opportunity to build up another pension, and his future looks bleak.

Will the Minister re-examine the financial assistance scheme? It has the basis of being a good scheme, but it needs to be extended. The ex-workers of Allied Steel and Wire have put up a magnificent fight for justice, and what has happened to them is one of the most unjust things that I have seen since I have been in the House. I wanted to use the debate to speak up for those people, who are campaigning to this very day. I urge the Minister to look sympathetically on the request to extend the financial assistance scheme to all who have suffered in such a way.

I congratulate my hon. Friend the Member for Cardiff, North (Julie Morgan), on securing the debate. I also thank my hon. Friend the Member for Cardiff, West (Kevin Brennan), and the right hon. Member for Cardiff, South and Penarth (Alun Michael), who provided soft support when he was a Minister. He always saw us in the Lobby and asked what had been going on.

We know well the ASW case. My concern is the court case in Europe, on which I shall ask the Minister two questions. I have already tabled parliamentary questions, but as I have not had a response I hope that the Minister will answer them. In the court hearing on 1 June, the Government applied for a temporal limitation procedure on the Amicus and Community European Court of Justice case. If it is granted, the case would be relevant only to Amicus and Community, whereas we know that at least 165 occupational pension schemes are caught by the problem of negative equity. Was it not rather unethical and immoral for the Government to do that? Amicus and Community are acting on behalf of their members but there are implications for occupational pensions as a whole. Has the Minister sought the support of the Irish Government in seeking a neat temporal limitation procedure in the case? I could say more, but I recognise that the Minister must respond.

The Secretary of State said in the discussion on the White Paper that he is open-minded on further initiatives. How can we bring back for discussion the cases that my hon. Friend the Member for Cardiff, North, and others have raised in the House continually in the past four years?

It is a pleasure to serve under your chairmanship for the first time, Mr. Bercow. I congratulate my hon. Friend the Member for Cardiff, North (Julie Morgan), on securing this important debate and I pay tribute to her work. I pay tribute, too, to the work of my right hon. Friend the Member for Cardiff, South and Penarth (Alun Michael) and my hon. Friends the Members for Cardiff, West (Kevin Brennan) and for Sittingbourne and Sheppey (Derek Wyatt). In the previous Parliament, they played a crucial role in persuading the Government to introduce the financial assistance scheme. They have all been absolutely dogged campaigners on behalf of their constituents, and the whole House recognises the success of their campaign.

My hon. Friend the Member for Cardiff, North spoke eloquently about the loss suffered by members of the scheme, and Members on both sides of the Chamber recognise the plight that they must be in, as well as their disappointment, anger and frustration at losing their benefits. I should therefore like to go through the points that my hon. Friend has raised and to put on the record some of the background to our decisions.

The FAS was introduced through the Pensions Act 2004. We set it up to help members of underfunded pension schemes that commenced winding up between 1 January 1997 and 5 April 2005 and were sponsored by an employer that had experienced an insolvency event. The first qualifying schemes were announced on 25 October 2005, and as of 16 June there were 455 of them.

We set up the FAS operational unit in York as part of the Department for Work and Pensions and it opened on 1 September 2005. I pay tribute to the huge amount of work that the unit has done to collect scheme and member data, thereby allowing decisions to be made on whether schemes and individuals qualify for the FAS. Decisions can be made, and assistance can be paid to affected scheme members, only once that information has been provided, and that has involved a significant amount of work. I was particularly pleased that some ASW members were among the first to benefit from the scheme and I thank the scheme’s trustees for making a significant effort to ensure that that could happen.

We recognise that there will always be frustrations with such cash-limited schemes. We are therefore extremely grateful for the support that was expressed at the time for extending the FAS and for the welcome that the proposal has been given today. As with any cash-limited scheme, there will always be people on the margins who do not qualify, and we recognise the frustration that they feel.

In setting out the context within which we took our decisions, it is important to say that the FAS is not a compensation scheme. The Government are not saying that they are liable for pension schemes that have faced such problems. We put the FAS in place because of the plight of those involved, not because we recognised liability. That is why we have targeted the money at assisting them in the difficulties that they face, not at restoring their benefits. Given the limited amount of money that we had available, it was correct to target it at those closest to retirement, who have the least time to make up any pension shortfall.

My hon. Friend mentioned the plans announced on 25 May to extend the scheme. To respond to her question, we envisage that about 40,000 members, or a third, will qualify out of the 125,000 who are affected. Essentially, the population breaks down as follows. One third are not covered by the scheme because they have lost less than £520 a year, and the scheme does not make payments for losses below that level. Then, there are those who do not qualify because they are within 15 years of scheme retirement age. Finally, there are the roughly 40,000 who will be covered by extending the scheme.

As my hon. Friend said, that represents a significant increase in the amount of money being provided. We estimate that extending the scheme in that way will mean providing another £1.92 billion over the lifetime of the scheme, on top of the £400 million over 20 years that we had already committed. That is a cash figure; if Members want the net present value figure, it is £540 million.

On the administration of the scheme, I know that some Members have been concerned about the speed of payments. Administration needs to be seen in the context of the work that has been needed to identify the qualifying schemes, because we are dependent on trustees providing us with information both on qualifying schemes and on the members who are eligible for assistance. However, a huge amount of work has been done and we have now identified the 455 qualifying schemes and can start making payments. I believe that we have now reached a figure of 93 payments made.

Nevertheless, we recognise that members and people affected by the situation want to see the payments made as quickly as possible, which is why we have announced that we shall review the administration of the financial assistance scheme to ensure that it is delivered most effectively. The review will examine a full range of delivery and organisation options to ensure that that is the case. We want to ensure that benefits are delivered to as many people as possible, as quickly as possible, and we have asked that the review produce its report before the summer recess. At the same time we shall continue to make as many payments as possible to members.

My hon. Friend mentioned the current deliberations in the European Court of Justice. The Government believe that they have met their obligations under article 8 of the European insolvency directive, as have successive Governments since implementation of the directive in 1983. As the matter is currently before the court, it is inappropriate for the Government to comment further. However, I reject the accusation made by my hon. Friend the Member for Sittingbourne and Sheppey that what we have done is immoral, and I point him to the fact that normal legal procedures apply. I would reassure him that I shall answer his questions in full as soon as possible—there was no intention to do anything other than follow the applicable legal procedures in ECJ cases.

Hon. Members have also mentioned the process that the Commission is undertaking. The Commission is reviewing how the complete regulatory framework of all member states complies with the directive.

Mention was also made of the ombudsman’s report, which I know has been of concern to many Members. It is important to clarify the Government’s position on the £15 billion, because it has been misunderstood—possibly deliberately—in some quarters. That figure is not misleading; it has been calculated by the Department’s professional economists, who have estimated the cost of implementing the ombudsman’s proposals. On 16 March, the Secretary of State told the House that the cost would be between £13 billion and £17 billion, and he made it absolutely clear that the figure was in cash terms. That is the way the Government express the figures, and it is the right way to ensure that public expenditure is controlled: Budget and spending review documents are costed in cash terms.

There are, of course, different ways of considering future costs. The alternative way is by a net present value calculation. In this case that produces the figure of £3 billion that was quoted by the hon. Member for Cardiff, Central (Jenny Willott). However, we entirely reject the accusation that the figures have changed or are misleading; they are the same as the figures that the Secretary of State gave to the House when he made his announcement. We promised that we would explain the calculations and present the figures both in cash and net present value terms, and that is exactly what we have done. The figures were not different; they just concerned two different ways of presenting figures such as these for the long-term future: in cash terms—the normal way of Government budgeting—and in net present value terms, which we have also given.

My hon. Friend the Member for Cardiff, North mentioned long service. I understand completely the point that she makes. We return of course to the question of what the financial assistance scheme is for. I know that this will be of no comfort to the constituents that she mentioned, but the scheme is not intended to be one of compensation, nor it is meant to restore people’s rights; it is intended to help those in the greatest need. The Government judged that the most effective and efficient way to do that was to target the money at those closest to retirement.

I understand that the other difficulty with seeking to calculate people’s contribution records is that data on length of service are not always readily available. That point was made to us by the pensions industry when we were devising the financial assistance scheme and trying to find a simple way of administering it.

Does my hon. Friend accept that the hardship suffered by those long service deferred pensioners should be recognised by the Government? Does he not think that there might be a case for looking further at the financial assistance scheme, as I believe was said when the White Paper was introduced to the House?

We would of course be very happy to continue to meet with Members concerned about the financial assistance scheme. Other Members raised concerns about employees of companies still solvent. I am happy to meet my hon. Friend to discuss that further.

Of course, we recognise the injustice that those members will feel they suffered. Everybody recognises that. The difficulty is that the scheme is cash limited, and although we have been able to extend it significantly, the amount of money that we have is not sufficient for all 125,000 people involved. We have therefore had to target the money in the way we felt was most appropriate.

The Government took the view that the way to do that was to focus on those closest to retirement because they have the least time in which to make up loses and provide themselves with a pension. I recognise that that will not minimise their frustration nor bring any comfort to those who were in the service of a company for a long time, such as those mentioned by my hon. Friend.

We extended the scheme significantly because we recognise the plight in which individuals have found themselves, but we decided to target the money in the way that we have because it was administratively the most simple and because those people were closest to retirement. I do not want to give my hon. Friend false hope by pretending that I have a solution in my back pocket, but I am happy to meet her and her colleagues to discuss the issue.

This has been an important debate, and again I congratulate my hon. Friend on securing it. As I said, I would be happy to discuss the issue further with hon. Members, as we are doing with the financial assistance scheme overall. We recognise clearly that not everybody benefits from that scheme and therefore people who fall outside it will be frustrated. On the other hand, I hope that the House will recognise that we have extended the scheme significantly; it has gone from £400 million over 20 years to £2.3 billion over its lifetime. That is a significant recognition of the plight of the individuals concerned, and I hope that it will be seen as a sign of the good faith of the Government in trying to address the issue.